Liquidia Technologies Inc. (NASDAQ:LQDA) Q4 2018 Earnings Conference Call February 26, 2019 8:00 AM ET

Company Participants

Jenny Kobin - Investor Relations
Neal Fowler - Chief Executive Officer
Kevin Gordon - President and Chief Financial Officer
Dr. Robert Roscigno - SVP of Product Development and Program Lead for LIQ861

Conference Call Participants

Liana Moussatos - Wedbush Securities
Serge Belanger - Needham & Company
Chris Howerton - Jefferies

Operator

Good day ladies and gentlemen and welcome to the Liquidia Technologies 2018 Financial Results and Corporate Update Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] I would like to remind everyone that this conference call is being recorded.

I would now hand the call over to Jenny Kobin, who’s supporting Liquidia's Investor Relations activities, while Jennifer Almond is on maternity leave.

Jenny Kobin

Thank you and good morning. Welcome to Liquidia Technologies fourth quarter and full year 2018 financial results and corporate update. Today's call will include forward-looking statements pursuant to the Private Securities 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 or at liquidia.com for information concerning risk factors that could cause such differences and otherwise affects the company.

I would now like to turn the call over to Neal Fowler, CEO.

Neal Fowler

Good morning. And thank you for joining us as we summarize Liquidia's results for the fourth quarter and year ended December 31^st 2018. Joining me today are Kevin Gordon, President and Chief Financial Officer; and Dr. Robert Roscigno, Senior Vice President of Product Development and Program Lead for LIQ861.

This morning, I will update you on our pipeline progress, which includes our lead product candidate LIQ861 for pulmonary arterial hypertension or PAH, currently been evaluated in a Phase III study, and LIQ865, our injectable, sustained-release formulation of the non-opioid anesthetic bupivacaine to treat local post-operative pain.

Kevin will provide highlights of our financial results for the fourth quarter and full year 2018. And then I will wrap up with an update on our upcoming key milestones in 2019. After our prepared remarks, we will open the call for your questions.

We will began with our lead program LIQ861, an inhaled dry powder formulation of treprostinil, designed using Liquidia's proprietary PRINT technology to enhance deep-lung delivery using a convenient palm-sized disposable device for the treatment of PAH. Given that PAH is a rare chronic and progressive disease, we believe 861 has the potential to improve a patient's overall quality of life. As an inhaled product, we believe 861 will minimize the systemic side effects seeing with oral and infused prostacyclin base products, while also overcoming the limitations of current nebulized therapies to safely deliver higher doses into the lungs.

In January of this year, we've recorded positive interim safety data from our pivotal Phase III clinical trial known as INSPIRE. 861 was observed to be well-tolerated in 109 PAH patients at the two week time point, the period, which addresses the FDA's request for data inclusion and our NDA submission. 861 was evaluated at doses up to 125 microgram capsule strength with no study-drug related serious adverse events or dose-limiting toxicities observed.

The treatment emergent adverse events reported were mostly mild in nature and consistent with inhaled process cycling therapy. Patients have continued to receive treatment beyond two weeks with the first patient dosed in March of 2018. To date, a maximum tolerated dose has not yet been reached with 861 administered at doses up to 150 micrograms in capsule strength.

As a reminder, the primary objective of the INSPIRE trial is to evaluate the long term safety and tolerability of 861. The trial is designed to evaluate two groups of PAH patients: first, patients who have been under stable treatment with nebulizer-delivered treprostinil for at least three months in our transition to 861; and second, patients who have been under stable treatment with no more than two non-prostacyclin oral PAH therapies for at least three months, and have their treatment regimen supplemented with 861.

Patients who transition from nebulizer-delivered treprostinil at a stable does were initiated at a dose of 861 lower than their current stable treprostinil dose. Patients adding 861 for current non-prostacyclin oral therapies started at a 25 microgram capsule strength. In both cases, 861 was uptitrated in 25 microgram incremental capsule strength doses to symptom-relief or the limit of tolerance. We are encouraged with the trial results to date and believe they support the therapeutic potential and versatility of 861 to treat patients across different functional classes.

Specifically, we enrolled the safety portion of the trial faster than expected, driven primarily by the interest from Functional Class II prostacyclin patients. We have not observed any new adverse events compared to previous studies of inhaled treprostinil. And we have safely increased the dosage of treprostinil to levels higher than current approved nebulized therapies. These early observations suggest that 861 maybe an attractive alternative to current inhaled and oral delivery of prostacyclin-based therapies.

The INSPIRE trial is nearly fully enrolled. We are focused on completing the PK sub-study and remain on track to report results in the second quarter of this year. The sub-study is designed to compare bioavailability and PK of treprostinil as patients are transitioned from nebulizer-delivered treprostinil to 861.

We also plan to continue treating patients in the INSPIRE trial and to collect data to further support our future marketing and commercial activities with additional medical information. In addition to the U.S. based INSPIRE study we are currently working with selected sites in the startup phase of the European clinical trial that will explore the hemodynamic effects of 861 in PAH patients. Although the data is not required or expected to be included for U.S. registration, we believe the study will help inform the medical community of 861's impact on right heart function as assessed by acute and chronic hemodynamic measurements. The study is also the first step in our clinical development program in Europe. Overall, we are pleased with the progress we've made advancing this program and we are focused on our plans to submit the NDA for 861 in late 2019.

Next, I would like to highlight LIQ865, our second product candidate, which has been evaluated in two Phase I studies. 865 is an injectable, sustained-relief formulation of the non-opioid anesthetic bupivacaine, to treat local post-operative pain for three to five days with a single administration. The opportunity for 865 is to increase the options for long lasting, safe, effective pain relief that can reduce the need for opioids in that early days following surgery.

We recently presented safety pharmacokinetics and pharmacodynamic results from our first Phase I study of 865 at the 17^th Annual Pain Medicine Meeting held by ASRA, the American Society of Regional Anesthesia and Pain Medicine. This presentation highlighted data indicating that 865 doses were well tolerated in healthy volunteers and the pharmacodynamic response was consistent with a local anesthetic effect lasting for or more days. This poster presentation is available on our website on the publication's page. Our next step for the 865 program is initiating Phase II enabling toxicology studies. The first is scheduled to begin in March with a goal of having this asset Phase II ready by the end of this year.

Before I wrap up, there's one other recent development that we'd like to highlight today. Liquidia has been accepted by the FDA into their Center for Drug Evaluation and Research, or CDER, Emerging Technology Program. This program was created to promote the adoption of innovative approaches to pharmaceutical product design and manufacturing technologies likely to improve product safety, identity, strength, quality and purity. It supports innovation by providing a forum for sponsors such as Liquidia to engage the FDA while in development, and is intended to provide consistency, continuity and predictability and review and inspection. We're thrilled to have been accepted into this program and intend to meet with the emerging technology team members in the near future to discuss our novel PRINT technology.

In summary, we've made meaningful progress across our clinical programs and are keenly focused on delivering on the next set of milestones.

With that, I will now turn the call over to Kevin to cover fourth quarter and full year financial highlights.

Kevin Gordon

Thank you, Neal, and good morning, everyone. Our fourth quarter and full year 2018 financial results can be found in the press release issued earlier today, which is available on our website. We will also file our annual report on Form 10-K with the SEC later today. In those documents, you'll see that revenues were $0.6 million in the fourth quarter of 2018 compared to $1.8 million in the year ago quarter.

For the full year 2018, revenues were $2.7 million compared to $7.3 million for the full year 2017. Our revenue has primarily been derived from collaborating and licensing our proprietary PRINT technology to pharmaceutical companies. The decrease in revenues was as expected given our shift towards prioritizing development of our own pharmaceutical products, notably 861 and 865. Near term revenues from research and development services perform for others are expected to be minimal with our strategic focus on our proprietary product pipeline using the PRINT technology platform.

Research and development expenses were $8 million in the fourth quarter of 2018 compared to $6.8 million in the year ago quarter. For the full year 2018, R&D expenses were $28.7 million compared to $24.8 million for the full year 2017. The increase in R&D expenses was primarily due to our ongoing Phase III clinical trial for 861, which commenced in December of 2017, and the related process development activities.

General and administrative expenses were $2.3 million in the fourth quarter of 2018 compared to $2.1 million in the year ago quarter. For the full year 2018, G&A expenses were $8.8 million compared to $10.2 million for the full year 2017. The full year decrease in G&A expenses was primarily due to the costs of an abandoned equity offering that were expensed in 2017.

We reported a net loss of $9.7 million in the fourth quarter of 2018 compared to net income of $8.2 million in the year ago quarter. The change from a profit to net loss for the fourth quarter was primarily related to $20.1 million of positive adjustments of fair market value related to convertible instruments and warrants in 2017 that were settled in 2018. For the full year of 2018, the net loss was $53.1 million compared to a net loss of $29.2 million for the full year 2017. The increase in net loss for the full year was primarily due to a decrease in revenues, increases in R&D and interest expenses as well as the positive adjustments of derivative fair market value in the prior year, partially offset by a decrease in G&A expenses in 2018.

Moving on to the balance sheet. As of December 31, 2018, cash totaled $39.5 million and there were 15.52 million shares of common stock outstanding. And I will now turn it back to Neal.

Neal Fowler

Thanks Kevin. 2018 was a transformational year for the company. We rapidly advanced two clinical programs. We evolved as a company listing on Nasdaq. And we enrolled the safety portion of our Phase III trial for our lead program faster than expected. During this period, our team has demonstrated its ability to develop new products and the versatility of the PRINT technology platform.

In 2019, we will continue our sharp focus on execution. Here are our key milestones for the year. We expect to initiate Phase II enabling toxicology studies of 865 beginning in March. We will present data on 861 key medical conferences ahead. We planned to report 861 bioavailability and PK data in the second quarter. We will begin a European trial to assess the effects of 861 on acute and chronic chemodynamic measurements. And importantly, we intend to submit an NDA for 861 in the late 2019. We look forward to updating you on our progress and we appreciate your interest and continued support.

I will now turn the call over to the operator to take your questions.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Our first question comes from the line of Liana Moussatos of Wedbush Securities. Your line is now open.

Liana Moussatos

What are the next steps left to submit the NDA for 861 by late this year? And is the CDER Emerging Technology Program part of the NDA for 861?

Neal Fowler

Hi, Liana. This is Neal. Good morning. Yes. So, the key steps ahead first off of NDA are as we shared in the second quarter, our PK and bioavailability data will be available, which goes into our submission. As you're aware, we'll have also a robust CMC package that comes together, and we will be completing the submission for the NDA by the end of the year. The Emerging Technology Program is not anything required at all for our NDA filing. But what is nice about that it allows touch points with the agency throughout the process as we prepare for the NDA given that PRINT is a new and very innovative technology. So we're very excited to be included in that program.

Operator

Thank you. Our next question comes from the line of Bill [indiscernible] of Cowen. Your line is now open.

Unidentified Analyst

I was just hoping that you give a bit more granularity of the hemodynamic study in terms of what an ideal outcome would look like and how that would fit in your go-to-market message? And then on the safety study for a chronic indication, why did that basically want two week endpoint? And do you anticipate any post-approval study commitments? Thanks.

Neal Fowler

Thanks, Bill. I appreciate it. I'll turn it over and let Bob Roscigno handle your question.

Robert Roscigno

Regarding the hemodynamic study, what we would like to see in the hemodynamic study is, again a signal that 861 formulation that we've developed here at Liquidia shows similar hemodynamic properties to other forms of treprostinil. As we described, we will be looking at both acute and chronic hemodynamics. And chronic hemodynamic changes over time are very important for PAH patients because they will help to find the chronic clinical impact of 861 and be informative to both -- the data will be informative to both dosing and dose titration as well over time. So we look forward to starting that study in Europe.

Regarding the two-week end point, I want to remind everyone that basically FDA asked us to look at the safety and tolerability of the PRINT dry powder formulation of treprostinil. And they felt that two weeks would be sufficient to look at for both safety signals that will come out of the data, and to our tolerability issues. And as we presented the data in January, we had a very clean profile for 861 and show that it was very well tolerated after two weeks. So we feel very confident this will be sufficient for the NDA. As far as post approval commitment, with all drugs, there's always the possibility FDA may ask for more data. And we look forward to engaging with the agency.

Operator

Thank you. Our next question comes from the line of Serge Belanger of Needham & Company. Your line is now open.

Serge Belanger

A couple questions on the INSPIRE trial that you mentioned you've dosed up to 150 micrograms. How high do you expect to go? And do you expect to find an MTD or dose limiting toxicities? And when you think of the potential product label for 861, what do you envision various doses you'll be seeking as well as the label claims?

Neal Fowler

Hey, Serge, good morning. This is Neal. We don't know, the MTD, as I've indicated earlier, yet, which is, we would like to ideally find the MTD. But our dosing has allowed us thus far to continue to go up as I just shared we’re at 150 micrograms capsule strength. We have built into the protocol the ability for physicians to titrate upward, and we'll continue to follow that three times. So, it's hard for me to conjecture where that top dose will be. But we're encouraged, obviously, by what we've seen given the fact that we can dose higher than currently available nebulized therapies. The label itself does will include, as you would imagine what the [indiscernible] as you think about the efficacy claims of Tyvaso, which is our reference listed drug here. The difference will obviously be the one to two breathe dosing regimen that we have the doses that will look like what we've seen from our schedule with the INSPIRE trial. And obviously, the two-week safety endpoint that we're very encouraged by what we've seen and that will correspond to the various dosing label claims that we'll have at that time. But looking forward again, it's really hard to know right now what that top dosing is because again, we're encouraged by the fact we still have not seen the MTD, and we'll follow that every time.

Operator

Thank you. [Operator Instructions] Our next question comes from the line of Chris Howerton of Jefferies. Your line is now open.

Chris Howerton

I think just a couple from me. First from -- for the hemodynamic study what was the reasoning in terms of conducting the study in Europe? And then, I have a follow-up question.

Robert Roscigno

Sure. Good morning, Chris. It's Robert. With the hemodynamic study we wanted to work with centers of excellence. And also we felt that it was an opportunity to if you will engage a program in Europe. And given the centers we're working with were really where we want to be with that studies working with the two of the most prestigious centers in Europe that are expert at collecting this type of data and will also lead to informing us with, if you will, a registration type study. We're working with the folks that will drive that development program in Europe. So we thought that the opportunities for us to both get important hemodynamic data that would be relevant for publication as well as informing our medical community. And also giving us the opportunity to engage ex-U.S. with this drug, as you know Tyvaso has not approved ex-U.S. So we felt this was an opportunity to start that process.

Chris Howerton

Okay. That makes sense. And were the centers disclosed?

Robert Roscigno

Not at this time. As we get closer, the study will be on quintrails and such. And we'll have all that data out there.

Chris Howerton

Okay. And then, I guess, the other question that I had was for the Emerging Technology Program. Could you give us some more information in terms of what the criteria is to become a part of that program? And specifically what benefits do you see that for your two current pipeline programs?

Neal Fowler

Yes, Chris. This is Neal. Good to speak with you. Yes, the Emerging Technology Program -- there is guidance document listed from September 2017 for those of you that are interested in kind of seeing more about that. But it was created to promote the adoption of innovative approaches to pharmaceutical product design and manufacturing. It's specific in this case for 861. And it really what else for us to meet with the emerging technology team to discuss PRINT prior to filing our regulatory submission. So it added touch points, I'll call it. We believe the program will provide a benefit for us and having active dialogue with the agency prior to filing, and we're very encouraged by that. You had mentioned both products, obviously, that would be a separate discussion we would have to have as it pretends to 865.

Chris Howerton

Got it. Okay. And I guess one just quick follow up if I may. When you have these additional engagements with the FDA, do you expect that those interactions to be eliminated to CMC experts or will you have an opportunity to discuss any -- with any of the other internal groups?

Neal Fowler

No. This is purely a CMC touch point if you will, in this particular case. Everything else would be standard care as you think about filing an NDA.

Operator

Thank you. And our next question comes from the follow-up from the line of Liana Moussatos of Wedbush Securities. Your line is now open.

Liana Moussatos

Thank you for taking my follow up. For 865, what are the steps to get it these two ready by year-end? And what are you thinking of for the Phase II design? And then, second question, any new PRINT clinical candidates to shift?

Neal Fowler

Hi, Liana. I'll take that. This is Neal again. The -- let me start maybe with your second question and then bring it back to the first. Our thinking right now, we don't know the exact protocol or anything like that as we think about Phase II. But what very much appears to us is the path forward here is a soft tissue and a hard tissue Phase II surgical model on design here. So our top studies for this year which are about to commence will prepare us for those two routes. We'll do a series of small and large animal studies to get its ready for Phase II over the course of this year and be ready to go as we get into 2020. As it pertains to beyond 865, we have the great opportunity here to decide that kind of sooner than later we would like to think -- as we think that through, we recall one of the great things about PRINT is it's not limited in any way to round up delivery to molecule and thus therapeutic area. And we have a host of opportunities with PRINT. We are active in our discussions around what would be that third product. And as soon as we're locked and loaded on that, we'll be back around to share that with you guys.

Liana Moussatos

Will that be this year or next year?

Neal Fowler

It’s hard to say. That's obviously depending on a lot of things, including financing and our focus on the NDA right now, which is paramount. So we'll keep you posted on that in terms of our tasting and when that will commence.

Operator

Thank you. And I'm showing no further questions at this time. I would now like to turn the call over to Mr. Neal Fowler, CEO for closing remarks.

Neal Fowler

Well, once again, we'd like to thank everyone for taking the time to participate in our call today. We greatly appreciate your interest and investment in Liquidia. And we look forward to being in touch and updating you on our continued progress. So thanks to everyone here and have a great day.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone have a great day.