Liquidia Corporation (LQDA) Earnings Call Transcript & Summary

Good morning, and welcome, everyone, to the Liquidia Corporation Corporate Update Conference Call. My name is Julie, and I will be your conference operator today. [Operator Instructions] I would like to remind everyone that this conference call is being recorded. Before the company begins, please note that today's conference call will contain forward-looking statements, including those statements regarding future results, unedited and forward-looking financial information, as well as the company's future performance and our achievements. These statements are subject to known and unknown risks and uncertainties, which may cause our actual results or performance to be materially different from any future results or performance expressed or implied on this call. For additional information, including a detailed discussion of risk factors, please refer to the company's documents filed with the Securities and Exchange Commission, which can be accessed on the website at www.liquidia.com. Joining the call today are Chief Executive Officer, Roger Jeffs; General Counsel, Rusty Schundler and other members of the Liquidia management team. I will now turn the call over to Mr. Roger Jeffs.

Thank you, Julie, and thank you, everyone, for joining today's corporate update on the webcast. We've organized this brief call today to emphasize that Liquidia's path to changing the lives of PAH patients is clear, even if it will be slightly longer than we had hoped. The very good news, which should not be missed is that between yesterday's decision from Judge Andrews in the District Court of Delaware and the previous favorable decisions from the Patent Trial and Appeal Board or PTAB, all of the patent claims asserted by United Therapeutics have been found by at least 1 tribunal to be either invalid or not infringed. I will speak to each patent in more detail to make this point clearer. I wanted to reiterate the conclusion of our productive efforts to date. If the decisions we've received to date from the court and the PTAB are affirmed on appeal, then we will be able to seek final approval for YUTREPIA and bring this important therapeutic option to PAH patients and their health care practitioners. For today's call, I will refer to each of the disputed 3 patents by their abbreviated names which are '066 and '901 for the 2 trepostinil API manufacturing patents and '793 for the method of use patent. Liquidia has now been found to not infringe any valid claim in the '066 and '901 patents, the 2 patents that originally triggered the 30-month regulatory stay. These patents were listed in the Orange Book for nebulized TYVASO, the reference listed drug in the YUTREPIA NDA. When we submitted under the 505(b)(2) regulatory path in 2020. Between yesterday's court decision on '066 and the inter partes review or IPR of the '901 patent, Liquidia has demonstrated that nearly all of the claims in these 2 patents are invalid. The remaining valid claims describe ambient temperature storage that are not infringed during the manufacturing of YUTREPIA. As you will note, the ruling issued by Judge Andrews only addresses the '066 patent because United Therapeutics had already stipulated Liquidia's non-infringement of the '901 in an earlier court proceeding. Moving to the '793 patent, Judge Andrews did not rule on Liquidia's favor based on the arguments presented at trial. This ruling of patent infringement may seem confusing in light of the PTAB's prior decision that all of the claims of '793 are unpatentable. However, it is important to understand that due to IPR at staple, Liquidia was precluded from uncertainty before Judge Andrews any grounds for invalidity that it had raised in the inter partes review proceeding at the PTAB. Thus, Liquidia was only able to present the judge with arguments of invalidity based on lack of enablement and lack of written description of the claims, which were not arguments that Liquidia is successfully presented to the PTAB. Based on these specific arguments, the judge ruled that Liquidia did not show by clear and convincing evidence that the asserted claims of the '793 patent were invalid. Despite the conflicting decisions, we are confident in the future path to YUTREPIA's approval. You may ask why. The answer is that Judge Andrews' ruling does not overrule the PTAB decision. Instead, the PTAB's decision, which is currently a subject to a request for rehearing by United Therapeutics. We'll go through its own appeals process and it ultimately affirms the '793 patent would be canceled, effectively nullifying Judge Andrews' decision on the '793 patent. This brings us to next steps. Based on this ruling, we expect Judge Andrews will order the FDA should not approve YUTREPIA at this time. This order will remain in place until the earliest of either, a, the PTAB's decision regarding the '793 patent is affirmed; or b, Judge Andrews' decision regarding the '793 patent is reversed; or c, the expiration of the '793 patent. As I've previously noted, United Therapeutics has filed a request for rehearing with respect to the '793 patent. They have also stated in court panels that if the rehearing request is denied, they will file an appeal of the PTAB's decision. We remain confident that the merits of our arguments that we've successfully made before the PTAB against the '793 patent and look forward to the completion of the appeals process. I'd like to turn the call over to Rusty now so that he can speak briefly on the timeline related to the gating '793 PTAB appeal and affirmation. Rusty?

Thanks, Roger. As Roger noted, given yesterday's decision, we anticipate the Judge Andrews' order soon in which he orders that the effective date of the approval of YUTREPIA cannot be earlier than the expiration of the '793 patent in 2027. As Roger also noted, however, this order would be dissolved upon either a successful appeal by liquidity of Judge Andrews' decision with respect to the '793 patent, or an affirmation on appeal of the PTAB's earlier decision in validating all claims of the '793 patent. We anticipate that a typical appeal can be expected to take approximately 12 months from the date of the notice of appeal. However, we will seek to expedite the briefing process and try to shorten this time period, if possible. With respect to the Hatch-Waxman decision, we anticipate that we will follow a notice of appeal in short order after the judge's order is entered. This means that the 12-month clock will begin to run within a few weeks. With respect to the '793 patent PTAB decision, United Therapeutics has filed a request for rehearing. Assuming that rehearing request is denied, then United Therapeutics would have 63 days from the date of the denial in which to file their notice of appeal. The variable we do not yet know is how long it will take for the PTAB to decide with respect to the rehearing request. PTAB's internal goal for responding to rehearing request is 1 month. However, this is not a requirement by statute and PTAB often misses this 1-month goal. Again, we will seek to expect this process so we can have the appeals heard and decided as soon as possible. And we will provide updates as the appeal timeline becomes clear. Roger?

Thank you, Rusty, for that very good clarification. We are here on this call to get years of dedication from a team of scientists, clinicians, manufacturers, financial backers and yes, lawyers, all bound by a single purpose to ensure this transformative new product can get into the hands of patients and physicians. The drive and result to surmount any obstacle along this path to this purpose is the foundation for what our company represents. We will continue to bring the same fight and commitment to help better the complex lives of PAH patients with a simple powder, a simple device and a simple promise to offer choice when they have had very few to date. At this time, I'd like to now open the conference for questions. Operator, first question.

[Operator Instructions] Your first question comes from Greg Harrison from Bank of America.

How are you thinking about the possibility of a launch at risk prior to an IPR appeal? Is this an option you're considering? And what are the most important factors in that decision?

Yes. Good to hear from you, Greg. I'd like to turn that question over to Rusty, please.

Thanks, Roger, and thanks for the question. So the launch at risk, in this case, is not -- would not really be an option for 2 reasons. One, the court's order will likely prohibit approval of YUTREPIA before the expiration of the '793 patent. Again, unless [indiscernible] process into -- concludes earlier. Secondly, because then the gating factor is the interest of the appeals process. There really wouldn't be a launch at risk at that point because at that point, you would have had both your decisions and the appeals process play out. So again, a launch at risk really is not something we're focused on at this point.

Next question comes from Serge Belanger from Needham & Company.

Just a couple of questions for us. Is there a potential that the judge does not enforce an injunction in its final ruling, given that the '793 patent was not part of the original Hatch-Waxman litigation initiated in 2019? And then secondly, maybe for Rusty, can you just walk us through some of the timelines expected around rehearing an appeals process at the PTAB?

Serge, I think both of those questions really reflect legal answer. So to Rusty, if you would?

Thanks, Roger, thanks, Serge. So on 2 questions, taking the first one first. We think the statute here requires to Judge Andrews include -- issue an injunction based on the '793. The fact that it wasn't part of the original Orange Book listing or the original 30-month stay isn't relevant at this stage in the proceedings. So we don't anticipate that as a likely scenario. With respect to the timing, and again, this is specific to the timing of the appeal and the '793 PTAB decision, so right now, again, they filed the rehearing request. We're waiting for the PTAB's response on that. The PTAB's internal goals for responding to rehearing requests are 30 days. They oftentimes don't hit that goal. And there's no statutory requirements to when they have to respond and address the rehearing request. We do anticipate it will be some number of months again as soon as 1 month. Once they make a decision, assuming they deny the rehearing request, United Therapeutics would then have 63 days in which to file their notice of appeal. And then once they file the notice of appeal, then that 12-month ballpark time period that I talked about would start to run. And again, we'll seek ways to expedite a briefing and other ways to try to cut down on that 12 months timeline once the notice of appeal has been filed.

okay so the -- I think in the press release that went out yesterday was talk of a mid-2024 potential target. So that just assumes all these -- the accumulation of all this time and the 12-month appeals process?

Correct. And again, I think we said by mid-2024, the 1 variable, as I noted, we don't know is how long it will take the PTAB to rule on the rehearing request. Obviously, once we know that, we'll be able to dial in a little bit more tightly the expected timeline, but that's the one variable we don't know from a timing perspective yet.

Yes, thanks, Serge. And I think, again, we were just trying to bracket the time frame. And as Rusty said, we'll update as soon as the recurring request is hopefully denied.

Your next question comes from Julian Harrison from BTIG.

Congrats on the update. Wondering if you're able to provide any color on your updated cash runway during and through the appeals here. And also along similar lines, how do you expect OpEx to trend over the next few quarters? Also wondering if there's still near-term plans for Group III PH study or does the FDA recently telling you that you don't need to run one maybe make it less group priority.

I'll take the last question first, and then Mike, if you could answer the financial questions, that would be great. So in terms of things that we're going to do in the interim, I think there's -- it's an important period of time for the company to still progress on many fronts. So I think we'll continue to gather longer-term data from our open-label extension study, where we want to continue to further elucidate and amplify the therapeutic profile as we see dose increase and patients endure the therapy for longer periods of time, which is all good data to express to the community. I do think we will look to do company-sponsored studies and investigator-initiated studies that explore additional benefits and uses of YUTREPIA either within Group III or other groups, frankly, and that's something we're actively pursuing at this point. We will continue to develop our medical education efforts to drive awareness. So before launch, I think there's some net-add things we can do to keep the community informed about the value proposition that YUTREPIA uniquely will provide. And then finally, I think we'll solidify our commercial plan, especially in Group III patients. As the important thing to note also is that upon affirmation and launch into WHO Group 1 patients with successful resolution of this litigation the PH-ILD market as you suggest, Julian, will be available to us almost at the same point in time, which, frankly, could be -- which would be at the end of March '24, at the latest. So this means we'll be able to launch into a cumulative opportunity that should be by that time, well in excess of $1 billion market opportunity. And we think with our preferred product profile, we can quickly become a preferred therapeutic option for patients new to inhaled treprostinil. So with that, Mike, if you could speak to the cash from the OpEx questions that Julian asked.

Yes, thanks, Roger, and thanks for the question, Julian. As you know, we ended Q2 with about $103 million in cash. We've previously stated that we -- that should enable us to get into 2024. As we've always done, we will evaluate all options to do what's best for shareholders. We feel confident in the cash position that we have right now, and like I said, we'll evaluate all those options. And with much more certainty on launch, we feel that many other options will be available for us to consider. And like Roger said, we'll be launching into a full label for that is obviously very helpful as well. So as it relates to the OpEx over the coming quarters, as we have stated on our Q2 call, we were playing to win, and we're preparing for a launch. So we're manufacturing commercial supply, building out the commercial teams. But one thing that we've done is we've been very judicious with our decision-making around building out the sales force. So we will be able to put things like that on hold. As Roger said, we will continue to look for future development opportunities for YUTREPIA, prepare for a launch that is just around the corner here. So I would expect that OpEx would stay flat to where we are right now to reducing a bit, especially in Q4 '22 and the early part of '23. But then we will be immediately back up. Ramping up to get ready for launch, hopefully at the latter part of '23 or first half of 2024.

Your next question comes from Matt Kaplan from Ladenburg.

Just a point of clarity. In terms of -- although you were precluded from using the arguments in the '793 patent that you -- that we're successful with the PTAB, could you use those arguments going forward in your appeal process of Judge Andrews' decision?

This is Jason Adair. Robert just had to drop for a second. So Rusty, could you take that question, please?

Sure, and thanks, Matt, for the question. So the way the appeals work is that the appeal is from the underlying decision, and so what the appeals court will look at is the judge's decision based on the issues presented to the judge. So there's not -- we wouldn't be able to look at the PTAB decision and say Judge Andrews should be overturned on whether he found the '793 patent valid because the PTAB found it invalid. However, consistent with some of the filings we made after the PTAB decision was entered with Judge Andrews, there would be some grounds for appeal potentially around some of those issues. But again, it wouldn't be quite the way you asked it. We wouldn't be able to point to the PTAB's decision on invalidity and then have Judge Andrews overturned on the grounds that he should have found the '793 to be invalid as well for the same reasons if that makes sense.

There are no further questions at this time. I will turn the call back over to the presenters.

Thanks, Julie. Mike, can you wrap up the call for us today?

Yes, thanks, Jason. So we really appreciate everyone joining on short notice. As Roger has said, we're very excited about the decisions that we are victorious on all 3 claims. We would like to launch these products earlier, but we will go through the appropriate channel to seek resolution as soon as possible and get this important medicine into patients' hands in the near term. So thanks, everyone, for your time, and have a great day.

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