Liquidia Q2 2023 Earnings Call Transcript

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August 10, 2023

There are 9 speakers on the call.

Operator

Good morning, and welcome everyone to the Liquidity Corporation's 2nd Quarter 2023 Financial Results and Corporate Update Conference Call. My name is Livia, and I will be your conference operator today. 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.

Operator

I will now hand the conference call over to Jason Adair, Chief Business Officer.

Speaker 1

Thank you, Olivia. 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, Doctor. Roger Jef Chief Financial Officer, Michael Cassetta General Counsel, Rusty Schundler and Chief Medical Officer, Doctor. Rajeev Sagar.

Speaker 1

Before we begin, please note that today's conference call will contain forward looking statements, including no 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 could 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.

Speaker 2

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 Eutrepia for both PAH and PHILD. I will note, however, that in addition to the significant legal derisking that Rusty will talk about shortly, we also achieved other major and important milestones in the quarter, Most notably, the license of L-six zero six at H3 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.

Speaker 2

I've asked Rusty to elaborate on 4 specific points. First, the favorable affirmation by the Federal Circuit that we do not infringe any valid claims of the 60 6 patent. 2nd, our confidence that United's attempt to overturn the PTAB's decision on the 793 patent will fail. 3rd, the positive impact in submitting an amendment to add the PHIL indication to eutrovia's label and lastly, Our confidence in why we feel that the recently allowed patent claims to United Therapeutics related to the treatment of PHIL D will not be an impediment to eUTREVIA. Rusty?

Speaker 3

Thank you, Roger. As a reminder, Liquidia has been party to 2 separate appeal proceedings at the Federal Circuit that are relevant to the launch of Eutrepia. Broadly speaking, the appeals relates to 2 patents asserted against Liquidia, the 66 patent, which Scribe's 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 The only thing that has changed in the last year is our increased confidence in our guidance with each legal decision.

Speaker 3

Now moving to the recent decision. On July 24, the Federal Circuit affirmed the District Court's decision from last August in Hatch Waxman litigation. The outcome of the appeal was in line with our expectations, meaning 506 claims in the 60 6 patent were affirmed as obvious, unpatentable and thus invalid and that Echepia does not infringe the single valid 60 6 patent claim that was asserted against us. The Federal Circuit also affirmed that Utrevia infringes the asserted claims to 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.

Speaker 3

As we have 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 eUTREVIA. As next steps with respect to this Federal Circuit ruling, It is possible that 1 or both parties could seek a rehearing by the 3 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 66 patent that we believe is likely to lead to any further rehearing or cert being granted.

Speaker 3

Even if a rehearing or cert is granted, It is important to remember that all 4 judges who have ruled on the 60 6 patent between the District Court and Federal Circuit have found the 60 6 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 tax placement 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.

Speaker 3

The merits of liquidius 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 ARP. In April, United appealed the PTAB's decision to the Federal Circuit and briefing should be completed in the Q4 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 Q4 2023 to early 2024. Once heard, the Federal Circuit could issue its ruling by one of 2 procedures. First, the court could issue a simple summary affirmance of the PTAB's decision within a few days after oral arguments.

Speaker 3

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 passes unlikely. However, whenever a favorable decision is issued, Liquidia will immediately seek final regulatory approval for Eutrevia. With these time frames 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 PHILB indication The amendment was filed on July 24, the same day that we received the decision in the hedge locksmith appeal.

Speaker 3

Due to the nature of the amendment, we were required to issue a second paragraph 4 notice that certified as of the date of the submission that the 6 patents listed for Tyvaso and the Orange Book are invalid and or not infringed by Utrevia. 3 of those patents, The 0.66, 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 3 patents in the orange book for Tyvaso are directed specifically to the nebulized delivery of treprostinil are completely unrelated to eutrepia We're not asserted against the 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 this 60 6 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 eutrepia products.

Speaker 3

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 in 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 PHIL V 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 EUTREVIA for PHIL D?

Speaker 3

And B, how could the USPTO grant these 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 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 PHIL indication. Instead, the burden would be on United to seek and prevail in obtaining a preliminary injunction.

Speaker 3

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 injunction This brings us to the second question. How could the USPTO grant these claims given the unpenetability of the 793 claims to treat all of 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 It predates the priority date of this new patent application and fully anticipates all of these new patent claims.

Speaker 3

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 PHILB 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 PHILV patients with treprostinil, including inhalotripostinil. In fact, our own Chief Medical Officer, Rajeev Sagar, explored the use of treprostinil 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 year 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.

Speaker 3

Accordingly, we strongly believe this new patent will not affect Liquidia's ability to commercialize ETRIPIA. 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?

Speaker 4

Thank you, Rusty, and good morning, everyone. Our Q2 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 2nd quarter with $88,200,000 in cash, equating to a net burn of only $5,100,000 over the 1st 6 months of this year. During the quarter, revenue from treprostinil injection increased $900,000 compared to the same quarter last year due to favorable gross to net chargeback and rebate adjustments, while cost of sales remained flat at 700,000 R and D expenses in the quarter increased $12,500,000 compared to Q2 2022, primarily due to the $10,000,000 upfront payment 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 Utrevia with speed,

Speaker 2

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 mid 2024. With that, I would now like to open the call for questions. Operator, first question please.

Operator

And our first question coming from the line of Greg Harrison with Bank of America. Your line is open.

Speaker 5

Good morning. This is Mary Kate on for Greg. Thank you so much for taking our question. I guess looking at L-six zero six here, where do you see this fitting

Speaker 2

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

Speaker 6

Yes, thank you. And Mary Kate, good morning. So a few things about L-six zero six. 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 also purposely designed to show a lower C MAX by relatively to 8 times lower than type A.

Speaker 6

So we believe this 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. So essentially what this allows for is a very sort of consistent, stable Tyvaso is delivered 4 times a day. And remember, dosing is not provided during usually the sleeping hours. So we provide complete 24 hour We anticipate that, as we run through the clinical studies, this will be Really taken up both in PAH and PAH LOD as a best in choice prostacyclin because of these

Operator

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

Speaker 7

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 eutravia in PHILD. Did I understand that correctly?

Speaker 2

Yes, Vyse, do you want to address that?

Speaker 3

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 And so we would not be automatically prevented from obtaining approval for PHLD. Instead, the burden would be on United To obtain a preliminary injunction and for the reasons noted during the prepared remarks, we think they'll have a hurdle to overcome to obtain that preliminary injunction.

Speaker 7

Okay, great. Thanks for clarifying that. And then can you just remind us of your clinical development plan in PHEILD? 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?

Speaker 2

Yes. So, it's correct, Julien. I'll answer the first part. We do not need Any additional data to add BHILD to the label? And 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 utopia BHLD patients.

Speaker 6

Sure. Thank you. Thanks for the question. Yes, just to reiterate what Roger is saying, we 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 PHLD. In regards to Eutrepia, we believe that one of the biggest unanswered questions is the use of a dry powder Formulation of treprostinil in these patients with PHILD.

Speaker 6

Remember, Tyvaso was originally approved using the nebulizer. So we believe studying that in a prospective open label fashion, we'll 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. 1, 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 is 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.

Speaker 6

Again, we believe these patients would benefit from a more portable device such as eutropia. So we believe all those facets are going to be extremely well perceived by the PAH community. And in regards to the study, We still believe that this we have noted before that the study will initiate near the end of 2023, Specifically in the United States. Thank you.

Speaker 7

Great. Thank you.

Speaker 2

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

Operator

Our next question coming from the line of Sergey Belanger with Needham. Your line is open.

Speaker 8

Hi, good morning. Just a couple of questions. I guess the first one on the recently filed NDA amendment for the PHILV indication. Just wondering about the next steps. Is it kind of the standard FDA acceptance within 60 days?

Speaker 8

And Do you expect a tentative approval from the FDA? I think you've talked about a 6 month review process.

Speaker 2

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 the Type 2 submission would be granted a 6 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 Euthers market exclusivity ends in March of 'twenty four, But that's the basic timeline.

Speaker 2

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.

Speaker 8

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

Speaker 2

I think it's largely a new patient start paradigm. I think the way we view this is we want doctors to use it a few times, get comfortable with its use in a patient Who's de novo to prostacyclin? 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.

Speaker 2

As you know, 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, the market that's already on a process like it can be a little bit stickier. I think we'd acknowledge that. So it's less about switches.

Speaker 2

Now having said that, I think If there's intolerance and as we hear in particular with PHIL D for Tyvaso and Tyvaso DPI for example, that those patients I think we'd 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, but our initial push will be in the de novo patient market, Which example I would say, look, there's lots of patients treated. I think users reporting over 6,000 on therapy at this point, Seems to be about a fifty-fifty split between the nebulized and the DPI formulations roughly speaking. And I think the other opportunity here I probably should have mentioned is once we establish the use and efficacy of eutrepia, for example, in PAH, We will then go after prostacyclin, our first choice, because we think it's probably a better option because it's gentler to take Thanks for the question, Serge. Operator, next question please.

Operator

Thank you. And our next question coming from the line of Canvys Yastine with Jefferies. The line is open.

Speaker 7

Hi, team. How should we think about OpEx moving forward with the eutrophia open label study and then eventually the L-six zero six Phase 3? Thank you.

Speaker 2

Yes, it's a great question. I'll ask Garcia and Mike Caseta, please.

Speaker 4

Yes, good morning, Kamish. Thanks for the question. As I said earlier, we ended Q2 with about $88,000,000 in cash. 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 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 1. So Very confident there.

Speaker 4

As it relates to L606, as I mentioned, we made a $10,000,000 upfront payment to Formosa. We would expect that the vast majority of development expenses will happen as we do 2020 really specific back end 24 and then after those years as the Phase 3 progresses. So in the end, we're very confident with where we are.

Speaker 2

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

Operator

Thank you. And our next question coming from the line of Matt Kaplan with Ladenburg Thalmann. Your line is open.

Speaker 2

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 And the United PTAB appeal. Yes. Matt, could you repeat the question?

Speaker 2

You broke up a little bit there. Yes. 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.

Speaker 2

But Rusty, if you would maybe emphasize some additional points, if you could.

Speaker 3

Sure. 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. 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 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.

Speaker 2

Okay. Okay. That's helpful. And then just going back to a follow-up on L-six zero six. Can you talk a little bit about the potential development timeline there?

Speaker 2

And Is manufacturing a rate limiting step to potential filing for approval? Yes. I'll ask Rajeev, our Chief Medical Officer, has ever seen the development to address that question.

Speaker 6

So first and foremost, just to highlight, The L-six zero six program has one 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 PHLD that can be transitioned from Tyvaso DPI or Tyvaso nebulizer to open label L-six zero six. That study is already recruiting and we have patients that have already achieved up to 1 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 that's first and foremost priority to just confirm That the requirement from my understanding is a single placebo controlled study With L606, specifically in PHILD, we believe that, that study, In particular, plus our Phase 1 study, in that combination will be enough for to seek NDA approval for both indications of

Speaker 2

And that's the time line. We're a little bit silent. We want to get through the Again, there's a good proxy for what we need to do just from the Tyvaso ILD study that was done. So there's precedent in terms of sample size, Time to get that study enrolled. And I think given its PHILD and that 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.

Speaker 2

So again, it will take us a few years, but I think we have the chance to become the first Less than 4 times a day option for patients. Operator, next question please.

Operator

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

Speaker 2

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.

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