Liquidia Corp(LQDA) - 2021 Q4 - Annual Report

PART I Item 1. Business Liquidia is a biopharmaceutical company focused on pulmonary hypertension, developing products like YUTREPIA using PRINT technology and commercializing generic treprostinil injection Overview Liquidia is a biopharmaceutical company focused on pulmonary hypertension, generating revenue from generic treprostinil and developing YUTREPIA with PRINT technology - Liquidia is a biopharmaceutical company focused on pulmonary hypertension (PH), operating through Liquidia Technologies and Liquidia PAH[19] - Generates revenue from a Promotion Agreement with Sandoz Inc. for generic treprostinil injection in the US[20] - YUTREPIA™ (treprostinil) inhalation powder received tentative FDA approval in November 2021[20] - Utilizes proprietary PRINT® technology for precise production of uniform drug particles[21] Our Products and Candidates for PH Liquidia's primary focus is PAH, with YUTREPIA (treprostinil inhalation powder) tentatively approved, pending litigation, and designed for enhanced deep lung delivery - PAH is a rare, chronic, progressive disease affecting approximately 30,000 patients in the US[23] Total Branded PAH Therapies Net Revenue (US) | Metric | Value (2020) | Value (2021) | | :------------------------------------------------ | :----------- | :----------- | | Total branded PAH therapies net revenue (US) | >$4 billion | N/A | | Prostacyclin pathway targeted revenue (US) | $2.2 billion | N/A | | United Therapeutics branded treprostinil net revenue | N/A | $1.43 billion | | Tyvaso® contribution to UT revenue | N/A | $607.5 million | | Orenitram® contribution to UT revenue | N/A | $306.1 million | | Remodulin® contribution to UT revenue (US) | $452 million | $423 million | - YUTREPIA™ (treprostinil) inhalation powder received tentative FDA approval in November 2021[31][34] - Final FDA approval and launch of YUTREPIA are directly impacted by pending Hatch-Waxman litigation, resulting in a 30-month regulatory stay until October 2022 or earlier court judgment[34][35] - YUTREPIA is an inhaled dry powder formulation designed to improve treprostinil's therapeutic profile by enhancing deep lung delivery and achieving higher dose levels using a convenient dry-powder inhaler (RS00 Model 8 DPI)[31][32] - The INSPIRE Phase 3 clinical trial showed YUTREPIA to be well-tolerated, with most Add-On patients titrating to 79.5 mcg or higher, and the highest dose reached being 212 mcg given four times per day[36][37] Treprostinil Injection, a Generic Version of Remodulin® Liquidia PAH exclusively markets Sandoz's generic Treprostinil Injection, launched in March 2019, competing with branded Remodulin® - Liquidia PAH exclusively markets Sandoz's generic Treprostinil Injection, launched in March 2019, as the first-to-file, fully-substitutable generic treprostinil for parenteral administration[42] - Branded Remodulin® generated U.S. revenue of approximately $423 million in 2021[41] - Liquidia PAH receives a portion of the net profits generated from the sales of Treprostinil Injection[42] - The RG 3ml Medication Cartridge, supplied by Chengdu Shifeng Medical Technologies LTD and cleared by the FDA in May 2021, supports subcutaneous administration of Treprostinil Injection with the CADD-MS 3 pump[44] Our PRINT Technology Liquidia's proprietary PRINT technology precisely engineers uniform drug particles to enhance pharmacological benefits and improve drug delivery, as seen in YUTREPIA - Proprietary PRINT particle engineering technology allows precise control over the size, three-dimensional geometric shape, and chemical composition of drug particles[45] - PRINT technology enables desirable pharmacological benefits, including prolonged drug release, increased drug loading, more convenient administration, and reduced adverse side effects[45] - YUTREPIA's PRINT particles are designed with a one-micrometer, trefoil-shape to enhance deep-lung delivery and reduce upper airway deposition[46] Development, Regulatory and Commercial Strategy Liquidia's strategy involves applying PRINT technology to FDA-approved APIs, using the 505(b)(2) pathway, and leveraging its sales force for YUTREPIA's U.S. launch - Strategy focuses on developing improved drug products using PRINT technology with FDA-approved APIs, eligible for the 505(b)(2) regulatory pathway[48] - Initial commercial efforts target the U.S. market in the treatment of PAH, leveraging the existing sales force for Treprostinil Injection to support YUTREPIA's launch[49] - Plans to expand its specialty field team and internal resources (e.g., medical science liaisons, reimbursement specialists) to support YUTREPIA commercialization[49] Manufacturing and Supply Liquidia operates a cGMP-compliant facility in Morrisville, NC, for PRINT technology, relying on sole third-party suppliers for YUTREPIA's API, DPI, and packaging - Operates a 45,000 sq ft facility in Morrisville, NC, for R&D and manufacturing using PRINT particle fabrication lines in cGMP-compliant clean rooms[50][52] - The Morrisville facility passed an FDA Pre-Approval Inspection in August 2021 with no Form 483 Inspectional Observations[53] - Relies on sole suppliers for key components: LGM Pharma, LLC for treprostinil API, Plastiape S.p.A for the RS00 Model 8 DPI, and Xcelience LLC for encapsulation and packaging services[54] - Sandoz manages the supply of Treprostinil Injection, and Chengdu Shifeng Medical Technologies LTD supplies the RG 3mL Medication Cartridge[55] Our Collaboration and Licensing Agreements Liquidia has a profit-sharing agreement with Sandoz for generic Treprostinil Injection and an exclusive license from UNC for its PRINT technology - Sandoz Promotion Agreement (Aug 2018) grants Liquidia PAH exclusive rights to promote generic Treprostinil Injection in the US, with Liquidia PAH receiving 50-80% of net profits[56][62] - The Promotion Agreement has an initial 8-year term, automatically renewable, with termination clauses based on net profit thresholds[61][63][64][65] - Exclusive license from UNC (Dec 2008) for PRINT technology, requiring low single-digit royalties on net sales of drug products using the technology[66][69] - Exclusive license of PRINT technology to Aerie Pharmaceuticals for ophthalmic therapies[71] - Collaboration with GlaxoSmithKline (GSK) for inhaled therapies is in dispute; Liquidia notified GSK of intent to terminate in Jan 2020 due to lack of performance[72][74] Intellectual Property Liquidia protects its products and PRINT technology through 149 patents and applications, including 12 U.S. patents for YUTREPIA, with the longest expiring in 2037 - Protects proprietary product candidates, methods of use, and PRINT technology through patents, trade secrets, know-how, and trademarks[75][76] IP Type Count (as of Dec 31, 2021) | IP Type | Count (as of Dec 31, 2021) | | :-------------------------------- | :------------------------- | | Total patents and pending applications | 149 | | Solely owned US patents | 16 | | Solely owned foreign patents | 44 | | Licensed patents and applications (from third parties) | 74 patents, 5 applications | | YUTREPIA specific issued US patents | 12 | - The longest-lived patent protecting YUTREPIA will expire in 2037[79] Competition Liquidia operates in a highly competitive pharmaceutical industry, facing major companies and generic drug firms, with products competing on efficacy, safety, and price - Operates in an intensely competitive pharmaceutical industry, facing competitors with greater financial and commercial resources[81] - Products compete on efficacy, safety, convenience of administration, price, and reimbursement[83] - In the PAH market, competition includes drugs targeting the prostacyclin, nitric oxide, and endothelin pathways, as well as new mechanisms of action[84] - Treprostinil Injection competes with branded Remodulin® (United Therapeutics) and generic treprostinil products from Teva, Par Pharmaceutical, Dr. Reddy's, and Alembic[86][220] - YUTREPIA faces competition from inhaled treprostinil therapies such as Tyvaso® (United Therapeutics), Ventavis® (Actelion), and investigational drugs like Tyvaso DPI™ (United Therapeutics), Treprostinil Palmitil Inhalation Powder (TPIP) (Insmed), and L606 (Pharmosa Biopharm Inc.)[91][217] - United Therapeutics is developing the Remunity™ pump for Remodulin® and RemoPro™ (a treprostinil prodrug) to enhance its competitive position[87] Human Capital Liquidia employed 52 individuals as of March 4, 2022, and its success depends on attracting and retaining skilled employees through competitive compensation and benefits - Employed 47 salaried and 5 hourly employees (total 52) as of March 4, 2022, all located in the United States[93] - Future success depends on attracting and retaining highly skilled employees through competitive compensation, equity ownership, development programs, and robust benefits[94] - Committed to diversity, equity, and inclusion across its workforce[95] - Implemented proactive safety measures, including substantially restricting travel and requesting remote work, in response to the COVID-19 pandemic[96] Facilities Liquidia's corporate headquarters is a 45,000 sq ft leased facility in Morrisville, NC, used for office, lab, R&D, and light manufacturing, adequate for current needs - Corporate headquarters is a 45,000 square foot leased facility in Morrisville, North Carolina[97] - The lease expires on October 31, 2026, and includes an option to renew for an additional five years[97] - The facility is used for general office, laboratory, research and development, and light manufacturing[97] Corporate Information Liquidia Corporation was incorporated in Delaware on June 17, 2020, with its principal offices in Morrisville, NC, and SEC filings available online - Incorporated in Delaware on June 17, 2020[98] - Principal executive offices are located at 419 Davis Drive, Suite 100, Morrisville, North Carolina 27560[98] - SEC filings are available free of charge on the company's website (www.liquidia.com) and the SEC's website (www.sec.gov)[98](index=98&type=chunk) Government Regulation The pharmaceutical industry is extensively regulated, covering all stages from R&D to commercialization, with complex U.S. approval processes and ongoing compliance requirements - Government authorities extensively regulate drug development, manufacturing, and commercialization in the U.S. and other countries[99] - The U.S. drug development process involves preclinical testing, Investigational New Drug (IND) applications, and three phases of human clinical trials (Phase 1, 2, 3) under Good Clinical Practice (GCP) and IRB oversight[104][105][110] - New Drug Applications (NDAs), including the 505(b)(2) pathway, are subject to FDA review, facility inspections for cGMP compliance, and potential delays from Hatch-Waxman litigation[122][123][132][133] - YUTREPIA, as a dry powder inhaler, is classified as a drug/device combination product, subject to specific FDA evaluation[139] - Approved drugs face extensive ongoing regulatory requirements (recordkeeping, reporting, promotion, safety, cGMP compliance), with non-compliance leading to severe sanctions[140][143][147][148] - Patent term restoration (up to five years) and marketing exclusivity provisions (e.g., five-year NCE, three-year for new clinical investigations, six-month pediatric) can impact market entry and generic competition[151][153][154][155] - Commercial success depends on coverage and adequate reimbursement from third-party payors, which is uncertain and influenced by increasing government cost containment efforts and healthcare reform initiatives[156][157][162][170] - Operations are subject to various federal and state healthcare laws (e.g., Anti-Kickback Statute, False Claims Act, privacy laws, Sunshine Act), with non-compliance risking penalties and operational restrictions[164][165][369] - Marketing products outside the U.S. requires compliance with diverse foreign regulatory requirements, which can be costly and time-consuming, and approval in one country does not guarantee approval in another[172] Item 1A. Risk Factors Investing in Liquidia's common stock involves high financial, operational, and legal risks, including YUTREPIA's uncertain approval and litigation - Liquidia expects to incur significant expenses and operating losses for the foreseeable future, requiring additional capital to finance future operations[175][178] - The company has a history of losses and negative operating cash flows, raising substantial doubt about its ability to continue as a going concern[175][179] - Primary dependence on YUTREPIA, which may fail to receive final marketing approval (tentatively approved in Nov 2021) or may not be commercialized successfully[175][240] - Ongoing patent litigation and a separate trade secret lawsuit initiated by United Therapeutics could delay YUTREPIA's commercialization efforts[175][204][211] - Dependence on Sandoz and Chengdu to manufacture and supply Treprostinil Injection and the RG Cartridge, respectively, in compliance with FDA requirements[175][191] - Faces significant competition from large pharmaceutical companies in product development and market entry[175][214] - The debt facility with SVB and Innovation contains milestones for drawdowns and operating/financial covenants that restrict business activities and are subject to acceleration in specified circumstances[175][186] Summary of Principal Risk Factors Liquidia faces significant expenses, uncertain YUTREPIA approval due to litigation, dependence on third parties, intense competition, and restrictive debt covenants - Expects significant expenses and operating losses for the foreseeable future, requiring additional capital[175][178] - Future profitability uncertain; history of losses raises substantial doubt about going concern[175][179] - Primary dependence on YUTREPIA, which may not receive final approval or be commercialized successfully[175][240] - Ongoing patent litigation and trade secret lawsuits with United Therapeutics could delay YUTREPIA commercialization[175][204][211] - Dependence on Sandoz and Chengdu for Treprostinil Injection and RG Cartridge manufacturing and compliance[175][191] - Faces significant competition from large pharmaceutical companies[175][214] - Debt facility with SVB and Innovation contains milestones and covenants that restrict business and financing activities[175][186] Risks Related to our Financial Position and Need for Additional Capital Liquidia anticipates ongoing losses and requires substantial additional capital, with its debt facility containing restrictive covenants and milestones - Expects significant expenses and operating losses for the foreseeable future, requiring substantial additional capital for clinical trials and commercialization[178] Net Losses and Accumulated Deficit | Metric | Year Ended Dec 31, 2021 | Year Ended Dec 31, 2020 | | :---------------------- | :---------------------- | :---------------------- | | Net Losses | $(34.6) million | $(59.8) million | | Accumulated Deficit | $(309.6) million | $(275.0) million | - Negative operating cash flows and a history of losses raise substantial doubt regarding the company's ability to continue as a going concern[179] - The $40.0 million debt facility with SVB and Innovation contains milestones for drawing down tranches and operating/financial covenants (e.g., minimum cash balance of $27.5 million, YUTREPIA revenue targets)[184][186] - Failure to obtain additional financing on acceptable terms could require curtailment, delay, or discontinuation of product development or other operations[181][183] - The ability to use net operating loss carryforwards and other tax attributes may be limited due to potential 'ownership changes' under Section 382 of the Internal Revenue Code[189] Risks Related to the Commercialization of our Product Candidates and Generic Treprostinil Injection YUTREPIA's final FDA approval is delayed by patent litigation, and commercial success depends on third-party supply and market acceptance - YUTREPIA's final FDA approval is delayed by Hatch-Waxman patent infringement litigation with United Therapeutics, triggering a 30-month regulatory stay until October 2022 or an earlier court judgment[204][245] - United Therapeutics has also initiated a separate lawsuit alleging misappropriation of trade secrets and unfair trade practices[211] - Liquidia PAH is dependent on Sandoz for the compliant manufacture and supply of Treprostinil Injection and on Chengdu for the RG Cartridge[191] - Sales of Treprostinil Injection and market acceptance of the RG Cartridge are critical for commercial success, influenced by healthcare providers, patients, and third-party payors[193][199] - Increased generic competition for Treprostinil Injection may result in declining prices[221] - Building and expanding internal marketing and sales capabilities for approved drug products is expensive and time-consuming, with risks of delays or ineffectiveness[231][233] - The business is exposed to product liability and other liability risks inherent in pharmaceutical development and commercialization, which could lead to significant financial and reputational harm[238][239] Risks Related to the Development and Regulatory Approval of our Product Candidates Successful development and regulatory approval of product candidates, especially YUTREPIA, are uncertain, costly, and subject to delays and competition - Primary dependence on the success of YUTREPIA; final marketing approval is uncertain and subject to delays from regulatory review and ongoing litigation[240][245] - FDA or comparable regulatory authorities may delay, limit, or deny approval due to disagreements with clinical trial design/data, manufacturing compliance, or safety/efficacy concerns[247][260] - Clinical trials are expensive, time-consuming, and difficult to design and implement; preclinical and early clinical results may not be predictive of later-stage success[249][251][255] - Delays in preclinical studies, clinical trials, or patient enrollment can increase costs and significantly impair the ability to commercialize product candidates[253][254][266] - YUTREPIA is a drug-device combination product, which may face additional challenges, risks, and delays in the regulatory approval process[267] - Reliance on the 505(b)(2) regulatory pathway carries risks, including potential requirements for additional clinical trials, citizen petitions from competitors, and Hatch-Waxman litigation delays[268][274] - The company's long-term strategy requires continually developing a pipeline of product candidates, and failure to do so could adversely affect business and prospects[276] - Clinical trials conducted outside the United States may not be accepted by the FDA, potentially requiring additional studies[278] Risks Related to Our Dependence on Third Parties Liquidia is highly dependent on single third-party suppliers for critical materials and on collaborators for expanding PRINT technology applications - Highly dependent on third-party suppliers for clinical and commercial supplies, including single suppliers for YUTREPIA's active pharmaceutical ingredient, device, encapsulation, and packaging[280][281] - Disruptions in supply, such as those caused by the COVID-19 pandemic, could adversely affect the development and commercialization of product candidates[282] - Establishing and maintaining licensing and collaboration arrangements with other pharmaceutical companies is crucial for expanding PRINT technology applications and commercializing products[283][284] - Collaboration and licensing arrangements are complex, time-consuming, and their success depends heavily on the efforts and activities of collaborators, which are not within Liquidia's control[284][288] Risks Related to our Intellectual Property Liquidia faces significant IP risks, including infringement claims, patent invalidation, and challenges in protecting trade secrets globally - Risk of third-party claims of intellectual property infringement, leading to costly and time-consuming litigation that diverts management attention and resources[289][293] - YUTREPIA's approval is subject to Hatch-Waxman patent litigation, which could result in damages, injunctions, or the need to obtain licenses or redesign the product[294][295] - Commercial success depends on obtaining and maintaining patent and trade secret protection in the U.S. and globally[297] - Patents may be challenged, found invalid or unenforceable, or designed around, and their limited lifespan may be inadequate given long development and regulatory review periods[299][300][386] - Inability to protect trade secrets could negatively impact the value of PRINT technology and product candidates[303][306] - Reliance on licenses to intellectual property owned by third parties (e.g., UNC) carries risks of termination or lack of control over patent prosecution and enforcement[307][309] - Enforcing intellectual property rights globally is expensive and challenging due to varying legal systems[312][313] - Need to protect trademark, trade name, and service mark rights to prevent competitors from leveraging name recognition[316] Risks Related to the Manufacturing of our Product Candidates Liquidia's novel PRINT technology and concentrated manufacturing facility in Morrisville, NC, pose unpredictable development costs and operational disruption risks - Product candidates are based on novel PRINT technology, which has not been used for previously FDA-approved products, making development time and cost unpredictable[318] - Operations are concentrated in Morrisville, North Carolina, making them vulnerable to disruptions from natural disasters or unforeseen events[319] - Significant damage or disruption to facilities or suppliers could materially and adversely affect operations, and insurance may not cover all losses[319] Risk Related to our Employees Liquidia's success depends on attracting and retaining skilled employees, with a limited talent pool and intense competition for key personnel - Ability to continue operations and manage future growth depends on hiring and retaining suitably skilled and qualified employees, including senior management[320] - Limited supply of suitable candidates due to specialized work, leading to intense competition for research, technical, clinical, and sales/marketing personnel[320] - Loss of services of skilled personnel, particularly the Chief Executive Officer, or inability to attract new talent, could seriously harm business strategy and prospects[320] Risks Related to our Common Stock Future stock sales, price volatility, significant insider ownership, and anti-takeover provisions pose risks to common stock investors - Future sales of common stock or securities convertible into common stock in the public market could cause the stock price to fall[321] - The market price of common stock is expected to be volatile, influenced by clinical trial results, regulatory approvals, competition, litigation, and general economic/market conditions[327] - Executive officers, directors, and principal stockholders beneficially owned 35.8% of capital stock as of March 4, 2022, exercising significant influence over stockholder-approved matters[329] - Obligated to develop and maintain proper and effective internal controls over financial reporting; past material weaknesses have been remediated, but future failures could adversely affect investor confidence[333][334] - As an 'emerging growth company,' Liquidia benefits from reduced disclosure and governance requirements, which may make its common stock less attractive to some investors[335] - Anti-takeover provisions in charter documents and Delaware law could make an acquisition difficult, limit attempts by stockholders to replace management, and adversely affect stock price[336][339] - Does not anticipate paying any cash dividends in the foreseeable future; capital appreciation, if any, will be the sole source of gain[343][345] General Risk Factors Liquidia faces adverse impacts from the COVID-19 pandemic, unpredictable regulatory approvals, extensive healthcare laws, and costly IP litigation - The evolving COVID-19 global pandemic is likely to adversely affect business and operations, impacting productivity, R&D, supply chains, and access to capital[348][351] - Marketing approval processes are unpredictable, potentially leading to delays, limited indications, or post-marketing requirements, and approval of generic versions or insufficient market exclusivity could adversely affect revenue[355][356][357][362] - Subject to extensive federal and state healthcare laws (e.g., Anti-Kickback Statute, False Claims Act, privacy laws, Sunshine Act), with non-compliance risking penalties and operational restrictions[365][366][369][373] - Relies on third-party Contract Research Organizations (CROs) for preclinical studies and clinical trials; CRO non-compliance or agreement termination could delay development and increase costs[374][375][376] - Approved products remain subject to ongoing regulatory obligations (manufacturing, labeling, promotion, post-marketing studies), with non-compliance risking severe sanctions[379][380] - May become involved in costly and time-consuming litigation to protect intellectual property, and patent terms may be inadequate due to long development and review periods[384][386] - Manufacturing facilities are subject to extensive and ongoing regulatory requirements (cGMP), and failure to comply or production difficulties may result in significant liability[388][390][391] Item 1B. Unresolved Staff Comments. There are no unresolved staff comments to report - No unresolved staff comments[392] Item 2. Properties Liquidia's corporate headquarters is a 45,000 sq ft leased facility in Morrisville, NC, used for office, lab, R&D, and light manufacturing - Corporate headquarters is a 45,000 square foot leased facility in Morrisville, North Carolina[393] - The lease expires on October 31, 2026, and includes an option for a five-year renewal[393] - The facility is used for general office, laboratory, research and development, and light manufacturing, and is considered adequate for current and foreseeable needs[393] Item 3. Legal Proceedings Liquidia is involved in Hatch-Waxman patent litigation with United Therapeutics regarding YUTREPIA, triggering a 30-month regulatory stay, and other antitrust lawsuits - Liquidia is involved in Hatch-Waxman patent infringement litigation with United Therapeutics regarding YUTREPIA, which triggered a 30-month regulatory stay on FDA final approval until October 2022[394] - United Therapeutics alleges infringement of U.S. Patent Nos. 9,604,901 ('901), 9,593,066 ('066), and 10,716,793 ('793)[394][396] - A partial judgment of non-infringement for the '901 Patent was stipulated in December 2021, but the '066 Patent still serves as a basis for the regulatory stay[397] - Inter partes reviews (IPR) at the USPTO have challenged the validity of the '901 and '793 patents, with seven claims of the '901 patent found unpatentable[398][399] - United Therapeutics filed a separate complaint in December 2021 alleging trade secret misappropriation and unfair trade practices[400] - Liquidia PAH and Sandoz are plaintiffs in antitrust litigation against United Therapeutics and Smiths Medical, alleging anticompetitive acts[401][402] - A settlement agreement was reached with Smiths Medical in April 2021, providing Liquidia PAH with specifications and a license for the CADD-MS 3 Cartridge and assistance for RG Cartridge FDA clearance[404] Item 4. Mine Safety Disclosures This item is not applicable to Liquidia Corporation - Not applicable[406] PART II Item 5. Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Liquidia's common stock trades on Nasdaq under "LQDA", has never paid dividends, and completed a private placement in April 2021 - Liquidia's common stock has been listed on the Nasdaq Capital Market under the symbol "LQDA" since November 19, 2020[408] - As of March 4, 2022, there were 70 record holders and an estimated over 1,000 beneficial owners of common stock[409] - The company has never paid cash dividends and does not expect to in the foreseeable future, intending to retain earnings for business growth. The A&R SVB LSA also precludes dividend payments without prior written consent[410] - A private placement in April 2021 involved the sale of 8,626,037 common shares at $2.52 per share, generating $21.7 million in gross proceeds for YUTREPIA commercialization and general corporate purposes[414] - Liquidia did not repurchase any of its securities during the year ended December 31, 2021[415] Item 6. Selected Financial Data This item is not applicable to Liquidia Corporation - Not applicable[416] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes Liquidia's financial performance for 2021 and 2020, covering revenue, expenses, liquidity, and critical accounting policies - Liquidia incurred net losses of $34.6 million in 2021 and $59.8 million in 2020, with an accumulated deficit of $309.6 million as of December 31, 2021[422] - The company expects to incur significant expenses and operating losses for the foreseeable future due to clinical trials, regulatory approval, and commercialization efforts[422][424] - Roger A. Jeffs, Ph.D., was appointed Chief Executive Officer effective January 3, 2022[426] - A new Amended and Restated Loan and Security Agreement (A&R SVB LSA) with SVB and Innovation provides up to $40.0 million in term loans, with $20.0 million funded in January 2022[429][708] - The A&R SVB LSA includes milestones for additional tranches (YUTREPIA final approval, sales targets) and financial covenants, such as maintaining a minimum cash balance of $27.5 million[432][709][711] Objective This section provides information to understand Liquidia's audited consolidated financial statements for 2021 and 2020, focusing on significant trends and material changes - Provides analysis of financial condition and results of operations for the years ended December 31, 2021 and 2020[418] - Highlights significant trends and material changes in financial position and operating results[418] Overview Liquidia is a biopharmaceutical company focused on PH, generating revenue from generic Treprostinil Injection and developing YUTREPIA, with significant operating losses - Biopharmaceutical company focused on PH, generating revenue from a Promotion Agreement with Sandoz for Treprostinil Injection[419][420] - Developing novel products using proprietary PRINT® technology[421] Net Loss and Accumulated Deficit | Metric | Year Ended Dec 31, 2021 | Year Ended Dec 31, 2020 | | :---------------------- | :---------------------- | :---------------------- | | Net Loss | $(34.6) million | $(59.8) million | | Accumulated Deficit | $(309.6) million | N/A | - Expects to incur significant expenses and operating losses for the foreseeable future due to product development and commercialization[422][424] Product Pipeline Liquidia's lead product candidate, YUTREPIA, an inhaled dry powder treprostinil for PAH, received tentative FDA approval in November 2021 - Lead product candidate is YUTREPIA for the treatment of PAH[425] - YUTREPIA received tentative approval of its New Drug Application (NDA) from the FDA in November 2021[425] Recent Events Recent events include the appointment of a new CEO, a new $40.0 million term loan agreement with SVB and Innovation, and the approval of a 2022 Inducement Plan - Roger A. Jeffs, Ph.D., was appointed Chief Executive Officer effective January 3, 2022, with an annual base salary of $650,000 and eligibility for a discretionary annual cash bonus of up to 50%[426][427] - Dr. Jeffs was granted a Sign-On Option for 1,682,827 shares and is entitled to a Second Tranche Option for 931,745 shares, both with vesting schedules and accelerated vesting upon a Change in Control[428] - On January 7, 2022, Liquidia entered into an Amended and Restated Loan and Security Agreement (A&R SVB LSA) for up to $40.0 million in term loans[429][708] - The A&R SVB LSA includes three tranches: $20.0 million funded immediately, $7.5 million upon YUTREPIA final approval by Dec 31, 2022, and $7.5 million upon achieving $27.5 million in trailing six-month YUTREPIA net sales by June 30, 2023[430][432][709] - The debt facility matures on December 1, 2025, with interest-only payments through December 31, 2023 (or Dec 31, 2024 if the third tranche milestone is achieved)[432][709] - The Board approved the 2022 Inducement Plan on January 25, 2022, reserving 310,000 shares for equity awards to new employees as a material inducement for employment[435][436] Components of Statements of Operations This section details revenue from the Sandoz Promotion Agreement, R&D expenses, G&A expenses, and other income/expense components - Primary revenue source is the Promotion Agreement with Sandoz for Treprostinil Injection; unit sales are expected to increase, but revenue growth may slow due to a reduction in the contractual profit split percentage (from 80% to 50%) after sales thresholds are met[437][439] - Cost of revenue includes expenses for the targeted sales force and amortization of the intangible asset associated with the Promotion Agreement[440] - Research and development expenses are expensed as incurred, covering clinical trials, manufacturing, scientific services, personnel, and regulatory activities; expected to remain consistent with 2021 levels in the near term[441][442] - General and administrative expenses primarily consist of salaries and related costs for executive, administrative, finance, and legal functions, including stock-based compensation, with anticipated increases for commercial operations[446] - Other income (expense) includes interest income from cash deposits and interest expense from leases and debt, encompassing non-cash charges like loss on extinguishment and interest accretion[447] Comparison of the Years Ended December 31, 2021 and 2020 Liquidia saw increased revenue in 2021 due to the Sandoz agreement, while R&D and G&A expenses decreased, leading to a reduced net loss Consolidated Statements of Operations Summary | Metric | Year Ended Dec 31, 2021 ($M) | Year Ended Dec 31, 2020 ($M) | Change ($M) | Change (%) | | :-------------------------- | :--------------------------- | :--------------------------- | :---------- | :--------- | | Revenue | 12.854 | 0.740 | 12.114 | 1,637.0% | | Cost of revenue | 3.023 | 0.238 | 2.785 | 1,170.2% | | Research and development | 20.517 | 32.222 | (11.705) | (36.3)% | | General and administrative | 23.111 | 27.369 | (4.258) | (15.6)% | | Total costs and expenses | 46.651 | 59.829 | (13.178) | (22.0)% | | Loss from operations | (33.797) | (59.089) | 25.292 | (42.8)% | | Total other expense, net | (0.782) | (0.674) | (0.108) | 16.0% | | Net loss and comprehensive loss | (34.579) | (59.763) | 25.184 | (42.1)% | - Revenue increase in 2021 was primarily due to a full year of revenue related to the Promotion Agreement following the acquisition of Liquidia PAH in November 2020[449] - Research and development expenses decreased by $11.7 million (36.3%) primarily due to lower expenses from the YUTREPIA clinical program (substantially completed) and lower employee/consulting expenses, partially offset by a $0.8 million increase in stock-based compensation due to accelerated vesting[451] - General and administrative expenses decreased by $4.3 million (15.6%) due to lower consulting and personnel expenses, offset by a $5.1 million increase in legal fees for YUTREPIA-related litigation and a $2.0 million increase in stock-based compensation[452] Liquidity and Capital Resources Liquidia's liquidity as of Dec 31, 2021, included $57.5 million in cash, with a new $40.0 million debt facility, and anticipates needing additional capital for future operations Cash and Cash Equivalents | Metric | As of Dec 31, 2021 | As of Dec 31, 2020 | | :---------------------- | :----------------- | :----------------- | | Cash and Cash Equivalents | $57.5 million | $65.3 million | - Financed growth through revenues, equity issuances (e.g., $21.7 million private placement in April 2021, $70.3 million public offering in July 2020), finance leases, and bank borrowings[454][456][458] - New A&R SVB LSA (Jan 2022) provides up to $40.0 million in term loans, with $20.0 million funded initially, retiring prior loans and adding $9.5 million cash[429][455][709] - Anticipates continued net losses and negative cash flows, requiring additional capital for YUTREPIA commercial launch, R&D, and corporate infrastructure[460] - Believes current cash and available borrowings under A&R SVB LSA will fund operations into Q4 2022, but estimates are subject to change[462][569] Cash Flow Summary | Cash Flow Activity | Year Ended Dec 31, 2021 ($M) | Year Ended Dec 31, 2020 ($M) | | :-------------------------------- | :--------------------------- | :--------------------------- | | Net cash used in operating activities | (34.0) | (54.1) | | Net cash used in investing activities | (0.1) | 0.2 | | Net cash provided by financing activities | 26.3 | 63.4 | Contractual Obligations and Commitments Liquidia has various contractual obligations, including manufacturing consulting, API purchase commitments, operating and finance leases, and employment agreements - Agreement with Chasm Technologies for manufacturing consulting services includes potential future contingent milestones and royalties totaling no more than $1.5 million[471][683] - Multi-year agreement with LGM Pharma, LLC for YUTREPIA's active pharmaceutical ingredients includes an annual minimum purchase commitment of $3.1 million, which was waived for the year ended December 31, 2022[472][684] Future Minimum Lease Payments (as of Dec 31, 2021) | Year Ending Dec 31 | Operating Leases ($M) | Finance Leases ($M) | Total ($M) | | :------------------- | :-------------------- | :------------------ | :--------- | | 2022 | 1.24 | 0.34 | 1.59 | | 2023 | 1.28 | 0.20 | 1.48 | | 2024 | 1.32 | 0.11 | 1.43 | | 2025 | 1.36 | 0.06 | 1.42 | | 2026 | 1.16 | 0.00 | 1.16 | | Total minimum lease payments | 6.36 | 0.72 | 7.07 | - Subject to claims and litigation in the normal course of business and has employment agreements with certain employees requiring payments upon specific events[474][475][685] Critical Accounting Policies and Estimates Liquidia's critical accounting policies involve assessing goodwill and long-lived assets for impairment, revenue recognition from the Sandoz agreement, and loss contingencies - Goodwill ($3.9 million from RareGen acquisition) is assessed annually for impairment; no impairment was determined as of December 31, 2021[479][629][585] - Long-lived assets, including definite-life intangible assets, are reviewed for realizability and impairment when conditions indicate carrying amounts may not be fully recoverable; no impairments have occurred to date[480][582] - Revenue from the Promotion Agreement with Sandoz is recognized under ASC 606, treating promotional activities as a single performance obligation[481][488][587][596] - Variable consideration (share of net profits) is included in the transaction price only to the extent that a significant reversal in cumulative revenue recognized is improbable[484][590] - Liabilities for commitments and contingencies are recorded when loss contingencies are both probable and estimable[489] JOBS Act As an "emerging growth company" under the JOBS Act, Liquidia has opted out of the extended transition period for accounting standards but utilizes other disclosure exemptions - Liquidia is an "emerging growth company" under the JOBS Act[490] - Irrevocably elected to "opt out" of the extended transition period for complying with new or revised accounting standards, thus complying with public company requirements[490] - Utilizes exemptions including reduced disclosure about executive compensation and exemption from auditor attestation for internal control over financial reporting[491] - Will remain an "emerging growth company" until the earliest of (i) $1.07 billion or more in total annual gross revenue, (ii) the last day of 2023, (iii) issuing over $1.0 billion in nonconvertible debt, or (iv) becoming a large accelerated filer[493] Smaller Reporting Company As a "smaller reporting company," Liquidia provides reduced disclosure, including only two years of audited financial statements and a reduced MD&A - Liquidia is a "smaller reporting company" as defined in Rule 12b-2 of the Exchange Act[494] - Provides reduced disclosure, including only two years of audited financial statements and reduced MD&A[494] Off-Balance Sheet Arrangements Liquidia Corporation did not have any off-balance sheet arrangements during the periods presented or currently - No off-balance sheet arrangements during the periods presented or currently[495] Item 7A. Quantitative and Qualitative Disclosures About Market Risk This item is not applicable to Liquidia Corporation - Not applicable[496] Item 8. Financial Statements and Supplementary Data Financial statements and supplementary data are presented in a separate section of this Annual Report on Form 10-K, beginning on page F-1 - Financial statements and supplementary data are located in a separate section of the Annual Report, starting on page F-1[497] Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure There have been no changes in or disagreements with accountants on accounting and financial disclosure - None[498] Item 9A. Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2021, with prior material weaknesses remediated - Management recognizes that control systems provide only reasonable, not absolute, assurance due to inherent limitations[499] - As of December 31, 2021, disclosure controls and procedures were concluded to be effective at the reasonable assurance level[500] - Material weaknesses identified in 2019 and 2020, stemming from finance personnel turnover, inadequate segregation of duties, and ineffective IT general controls, have been fully remediated as of December 31, 2021[501][502][505] - No material changes in internal control over financial reporting occurred during the quarter ended December 31, 2021[506] - Management concluded that internal control over financial reporting was effective as of December 31, 2021, based on the COSO framework[507] - An attestation report from the independent registered public accounting firm is not included due to an exemption for emerging growth companies[508] Item 9B. Other Information There is no other information to report under this item - None[509] Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections There is no disclosure regarding foreign jurisdictions that prevent inspections - None[510] PART III Item 10. Directors, Executive Officers and Corporate Governance Information regarding Liquidia's executive officers, Board of Directors, and corporate governance is incorporated by reference from the 2022 proxy statement - Information regarding executive officers, Board of Directors, Section 16(a) compliance, and corporate governance is incorporated by reference from the 2022 definitive proxy statement[513][514][515][516] - The Code of Conduct, applicable to directors and employees, is posted in the 'Corporate Governance' section of the Investors section on liquidia.com[517] Item 11. Executive Compensation Information concerning executive compensation is incorporated by reference from the definitive proxy statement for Liquidia's 2022 annual meeting of stockholders - Information on executive compensation is incorporated by reference from the definitive proxy statement for the 2022 annual meeting of stockholders[519] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters As of December 31, 2021, Liquidia had 5,598,009 securities to be issued from outstanding options, with 23,469,093 available for future issuance Securities Authorized for Issuance Under Equity Compensation Plans (as of Dec 31, 2021) | Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans | | :------------------------------------------------ | :------------------------------------------------------------------------ | :------------------------------------------------------------------------ | :------------------------------------------------------------------------- | | Equity compensation plans approved by security holders | 3,598,009 | $4.86 | 17,469,093 | | Equity compensation plans not approved by security holders | 2,000,000 | $3.00 | 6,000,000 | | Total | 5,598,009 | $4.19 | 23,469,093 | - On January 1, 2022, an additional 2,091,509 shares of common stock were automatically added to the shares authorized for issuance under the 2020 Long-Term Incentive Plan due to its "evergreen" provision[523] - The remaining information for this item is incorporated by reference from the definitive proxy statement for the 2022 annual meeting of stockholders[521] Item 13. Certain Relationships and Related Transactions, and Director Independence Information regarding certain relationships and related party transactions, as well as director independence, is incorporated by reference from the definitive proxy statement for Liquidia's 2022 annual meeting of stockholders - Information on certain relationships, related party transactions, and director independence is incorporated by reference from the 2022 definitive proxy statement[524] Item 14. Principal Accounting Fees and Services Information concerning principal accounting fees and services is incorporated by reference from the definitive proxy statement for Liquidia's 2022 annual meeting of stockholders - Information on principal accounting fees and services is incorporated by reference from the definitive proxy statement for the 2022 annual meeting of stockholders[526] PART IV Item 15. Exhibits and Financial Statement Schedules This section lists financial statement schedules and exhibits filed as part of the Annual Report on Form 10-K, including corporate documents and various contracts - Required financial statement schedules are included in the notes to the financial statements[528] - A comprehensive list of exhibits is filed, including merger agreements, corporate documents, warrants, equity plans, and various contracts[529][531][533] - Some portions of exhibits have been granted confidential treatment or redacted in compliance with Regulation S-K Item 601(b)(10)[537] Item 16. Form 10-K Summary There is no Form 10-K Summary provided in this report - None[538]