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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal quarter ended June 30, 2023

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to

Commission File Number: 001-39724

LIQUIDIA CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

Delaware

   

85-1710962

(State or Other Jurisdiction of Incorporation or Organization)

(I.R.S. Employer Identification No.)

419 Davis Drive, Suite 100

Morrisville, North Carolina

   

27560

(Address of Principal Executive Offices)

(Zip Code)

Registrant’s telephone number, including area code: (919) 328-4400

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, $0.001 par value per share

LQDA

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

Accelerated Filer

Non-accelerated Filer

Smaller Reporting Company

Emerging Growth Company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No

As of August 1, 2023, there were 64,741,096 shares of the registrant’s common stock outstanding.

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LIQUIDIA CORPORATION

Page

PART I. FINANCIAL INFORMATION

Item 1.

Condensed Financial Statements (unaudited)

6

Condensed Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022

6

Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Six Months Ended June 30, 2023 and 2022

7

Condensed Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended June 30, 2023 and 2022

8

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2023 and 2022

9

Notes to Condensed Consolidated Financial Statements

10

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

31

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

42

Item 4.

Controls and Procedures

42

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

42

Item 1A.

Risk Factors

44

Item 6.

Exhibits

83

Signatures

84

This Quarterly Report on Form 10-Q, or this Quarterly Report, includes our trademarks, trade names and service marks, such as Liquidia, the Liquidia logo, YUTREPIA and PRINT, or Particle Replication In Non-wetting Templates, which are protected under applicable intellectual property laws and are the property of Liquidia Technologies, Inc. This Quarterly Report also contains trademarks, trade names and service marks of other companies, which are the property of their respective owners. Solely for convenience, trademarks, trade names and service marks referred to in this Quarterly Report may appear without the ®, ™ or SM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the right of the applicable licensor to these trademarks, trade names and service marks. We do not intend our use or display of other parties’ trademarks, trade names or service marks to imply, and such use or display should not be construed to imply, a relationship with, or endorsement or sponsorship of us by, these other parties.

2

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Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements. All statements other than statements of historical facts contained in this Quarterly Report may be forward-looking statements. The forward-looking statements are contained principally in the sections entitled “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” but are also contained elsewhere in this Quarterly Report. In some cases, you can identify forward-looking statements by terms such as “may,” “might,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “would,” “intends,” “targets,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other similar expressions. Forward-looking statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Forward-looking statements include, but are not limited to, statements about:

those identified and disclosed in our public filings with the U.S. Securities and Exchange Commission (“SEC”) including, but not limited to (i) the timing of and our ability to obtain and maintain regulatory approvals for our product candidates, including YUTREPIA, the potential for, and timing regarding, eventual final approval by the United States Food and Drug Administration (the “FDA”) of and our ability to commercially launch YUTREPIA, including the potential impact of regulatory review, approval, and exclusivity developments which may occur for competitors; (ii) the timeline or outcome related to appeals or other motions arising in or from our patent litigation with United Therapeutics Corporation (“United Therapeutics”) that was filed in the U.S. District Court for the District of Delaware or the inter partes reviews with the Patent Trial and Appeal Board of the U.S. Patent and Trademark Office or any future patent litigation with United Therapeutics or any other third party; (iii) the timing and our ability to obtain and maintain regulatory approval for the infusion pump that we are developing with Sandoz Inc. (“Sandoz”) and Mainbridge Health Partners, LLC (“Mainbridge”); and (iv) the timing and our ability to obtain and maintain regulatory approval for L606, an investigational, liposomal formulation of treprostinil that we licensed from Pharmosa Biopharm Inc. (“Pharmosa”); and (iv) our ability to continue operations as a going concern without obtaining additional funding;
our ability to predict, foresee, and effectively address or mitigate future developments resulting from health epidemics, such as the COVID-19 pandemic, or other global shutdowns, which could include a negative impact on the availability of key personnel, the temporary closure of our facility or the facilities of our business partners, suppliers, third-party service providers or other vendors, or delays in payments or purchasing decisions, or the interruption of domestic and global supply chains, the economy and capital or financial markets;
our expectations regarding the size of the patient populations for, market acceptance and opportunity for those drug products that we commercialize in collaboration with third parties, including Sandoz’s first-to-file fully substitutable generic treprostinil injection;
the availability and market acceptance of medical devices and components of medical devices used to administer our drug products and drug products that we commercialize with third parties, including Smiths Medical’s CADD-MS 3 infusion pump, the RG 3ml Medication Cartridge that we developed in collaboration with Chengdu Shifeng Medical Technologies LTD. used for the subcutaneous administration of Sandoz’s generic treprostinil injection, Smiths Medical’s CADD Legacy and CADD-Solis infusion pumps used for the intravenous administration of Sandoz’s generic treprostinil injection, the infusion pump that we are developing with Sandoz and Mainbridge for the subcutaneous administration of Sandoz’s generic treprostinil injection, Plastiape’s RS00 Model 8 dry powder inhaler, which we plan to use for the administration of YUTREPIA and any devices used for the administration of L606;
our ability to draw down on our financing facility with Healthcare Royalty Partners IV, L.P. (“HCR”) and our ability to satisfy the covenants contained in the Revenue Interest Financing Agreement with HCR (the “RIFA”);
our ability to retain, attract and hire key personnel;
prevailing economic, market and business conditions;
the cost and availability of capital and any restrictions imposed by lenders or creditors;
changes in the industry in which we operate;
the failure to renew, or the revocation of, any license or other required permits;

3

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unexpected charges or unexpected liabilities arising from a change in accounting policies, including any such changes by third parties with whom we collaborate and from whom we receive a portion of their net profits, or the effects of acquisition accounting varying from our expectations;
the risk that the credit ratings of our company or our subsidiaries may be different from what the companies expect, which may increase borrowing costs and/or make it more difficult for us to pay or refinance our debts and require us to borrow or divert cash flow from operations in order to service debt payments;
fluctuations in interest rates;
adverse outcomes of pending or threatened litigation or governmental investigations, including our patent litigation with United Therapeutics, the litigation arising from United Therapeutics’ claim that we and a former employee misappropriated trade secrets from United Therapeutics and any future litigation with United Therapeutics or any other third party;
the effects on our company or our subsidiaries of future regulatory or legislative actions, including changes in healthcare, environmental and other laws and regulations to which we are subject;
conduct of and changing circumstances related to third-party relationships on which we rely, including the level of credit worthiness of counterparties;
the volatility and unpredictability of the stock market and credit market conditions;
conditions beyond our control, such as natural disasters, global pandemics (including COVID-19), or acts of war or terrorism;
variations between the stated assumptions on which forward-looking statements are based and our actual experience;
other legislative, regulatory, economic, business, and/or competitive factors;
our plans to develop and commercialize our product candidates;
our planned clinical trials for our product candidates;
the timing of the availability of data from our clinical trials;
the timing of our planned regulatory filings;
the timing of and our ability to obtain and maintain regulatory approvals for our product candidates;
the clinical utility of our product candidates and their potential advantages compared to other treatments;
our commercialization, marketing and distribution capabilities and strategy;
our ability to establish and maintain arrangements for the manufacture of our product candidates and the sufficiency of our current manufacturing facilities to produce development and commercial quantities of our product candidates;
our ability to establish and maintain collaborations;
our estimates regarding the market opportunities for our product candidates;
our intellectual property position and the duration of our patent rights;
our estimates regarding future expenses, capital requirements and needs for additional financing; and
our expected use of proceeds from prior public offerings and the period over which such proceeds, together with our available cash, will be sufficient to meet our operating needs.

You should refer to the “Risk Factors” section of this Quarterly Report on Form 10-Q for a discussion of important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements, including, but not limited to, the impact of the COVID-19 pandemic on our company and our financial condition and results of operations. The forward-looking statements in this Quarterly Report on Form 10-Q are only predictions, and we may not actually achieve the plans, intentions or expectations included in our forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements.

These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. While we may elect to update these forward-looking statements at some point in the future, we have no current intention of doing so

4

Table of Contents

except to the extent required by applicable law. You should therefore not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this Quarterly Report on Form 10-Q.

Unless the context otherwise requires, references in this Quarterly Report on Form 10-Q to we, us, our, Liquidia and the Company refer to Liquidia Corporation, a Delaware corporation, and unless specified otherwise, include our wholly owned subsidiaries, Liquidia Technologies, Inc., a Delaware corporation, or Liquidia Technologies, and Liquidia PAH, LLC (formerly known as RareGen, LLC, or RareGen), a Delaware limited liability company, or Liquidia PAH.

5

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PART I. FINANCIAL INFORMATION

Item 1. Condensed Financial Statements

Liquidia Corporation

Condensed Consolidated Balance Sheets (unaudited)

(in thousands, except share and per share data)

June 30, 

December 31, 

    

2023

    

2022

Assets

 

  

 

  

Current assets:

 

  

 

  

Cash and cash equivalents

$

88,196

$

93,283

Accounts receivable, net

4,095

5,017

Prepaid expenses and other current assets

 

601

 

1,511

Total current assets

 

92,892

 

99,811

Property, plant and equipment, net

 

4,171

 

4,151

Operating lease right-of-use assets, net

 

1,914

 

2,101

Indemnification asset, related party

6,696

6,595

Contract acquisition costs, net

8,207

8,604

Intangible asset, net

3,554

3,726

Goodwill

3,903

3,903

Other assets

 

260

 

307

Total assets

$

121,597

$

129,198

Liabilities and stockholders’ equity

 

 

  

Current liabilities:

 

 

  

Accounts payable

$

1,918

$

2,197

Accrued expenses and other current liabilities

14,767

5,522

Revenue interest financing payable, current

1,741

Operating lease liabilities, current

 

965

 

900

Finance lease liabilities, current

 

104

 

181

Total current liabilities

 

19,495

 

8,800

Litigation finance payable

6,695

6,594

Revenue interest financing payable, noncurrent

31,799

Operating lease liabilities, noncurrent

 

2,833

 

3,332

Finance lease liabilities, noncurrent

 

118

 

171

Long-term debt

 

 

19,879

Total liabilities

 

60,940

 

38,776

Commitments and contingencies (Note 13)

 

 

  

Stockholders’ equity:

 

 

  

Preferred stock — 10,000,000 shares authorized, none outstanding

 

 

Common stock — $0.001 par value, 100,000,000 and 80,000,000 shares authorized as of June 30, 2023 and December 31, 2022, respectively, 64,740,382 and 64,517,912 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively

 

65

 

64

Additional paid-in capital

 

446,450

 

440,954

Accumulated deficit

 

(385,858)

 

(350,596)

Total stockholders’ equity

 

60,657

 

90,422

Total liabilities and stockholders’ equity

$

121,597

$

129,198

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Liquidia Corporation

Condensed Consolidated Statements of Operations and Comprehensive Loss (unaudited)

(in thousands, except share and per share data)

Three Months Ended June 30, 

Six Months Ended June 30, 

2023

2022

2023

2022

Revenue

    

$

4,786

    

$

3,918

    

$

9,279

    

$

7,410

Costs and expenses:

 

 

  

 

 

  

Cost of revenue

 

671

 

731

 

1,325

 

1,425

Research and development

 

17,695

 

5,219

 

22,973

 

9,947

General and administrative

 

9,245

 

6,938

 

17,038

 

19,480

Total costs and expenses

 

27,611

 

12,888

 

41,336

 

30,852

Loss from operations

 

(22,825)

 

(8,970)

 

(32,057)

 

(23,442)

Other income (expense):

 

 

  

 

 

  

Interest income

 

734

 

65

 

1,656

 

69

Interest expense

 

(1,426)

 

(542)

 

(2,550)

 

(1,020)

Loss on extinguishment of debt

 

 

 

(2,311)

 

(997)

Total other expense, net

 

(692)

 

(477)

 

(3,205)

 

(1,948)

Net loss and comprehensive loss

$

(23,517)

$

(9,447)

$

(35,262)

$

(25,390)

Net loss per common share, basic and diluted

$

(0.36)

$

(0.15)

$

(0.54)

$

(0.44)

Weighted average common shares outstanding, basic and diluted

64,788,482

62,179,305

64,722,818

57,349,129

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Liquidia Corporation

Condensed Consolidated Statements of Stockholders’ Equity (unaudited)

(in thousands, except shares amounts)

    

Common

Common

Additional

Total

Stock

Stock

Paid in

Accumulated

Stockholders’

    

Shares

    

Amount

    

Capital

    

Deficit

    

Equity

Balance as of December 31, 2022

 

64,517,912

$

64

$

440,954

$

(350,596)

$

90,422

Issuance of common stock upon exercise of stock options

 

21,447

 

 

79

 

 

79

Issuance of common stock upon vesting of restricted stock units

 

89,804

 

1

 

(1)

 

 

Issuance of common stock under employee stock purchase plan

81,281

 

 

335

 

335

Stock-based compensation

 

 

 

2,552

 

 

2,552

Net loss

 

 

 

 

(11,745)

 

(11,745)

Balance as of March 31, 2023

 

64,710,444

$

65

$

443,919

$

(362,341)

$

81,643

Issuance of common stock upon exercise of stock options

 

10,173

 

 

32

 

 

32

Issuance of common stock upon vesting of restricted stock units

19,765

 

 

 

Stock-based compensation

 

 

 

2,499

 

 

2,499

Net loss

 

 

 

 

(23,517)

 

(23,517)

Balance as of June 30, 2023

 

64,740,382

$

65

$

446,450

$

(385,858)

$

60,657

 

  

 

  

 

  

 

  

 

  

 

Common

Common

Additional

Total

 

Stock

Stock

Paid in

Accumulated

Stockholders’

     

Shares

    

Amount

    

Capital

    

Deficit

    

Equity

Balance as of December 31, 2021

52,287,737

$

52

$

374,794

$

(309,581)

$

65,265

Issuance of common stock upon exercise of stock options

143,048

 

 

593

 

 

593

Issuance of common stock upon vesting of restricted stock units

1,690

 

 

 

 

Issuance of common stock under employee stock purchase plan

5,017

 

 

28

 

28

Issuance of warrant

 

 

1,317

 

 

1,317

Equity consideration for acquisition

616,666

 

1

 

(1)

 

 

Stock-based compensation

 

 

4,129

 

 

4,129

Net loss

 

 

 

(15,943)

 

(15,943)

Balance as of March 31, 2022

53,054,158

$

53

$

380,860

$

(325,524)

$

55,389

Issuance of common stock upon exercise of stock options

364

 

 

1

 

 

1

Issuance of common stock upon vesting of restricted stock units

17,496

 

 

 

Sale of common stock, net

11,274,510

 

11

 

54,450

 

54,461

Stock-based compensation

 

 

1,703

 

 

1,703

Net loss

 

 

 

(9,447)

 

(9,447)

Balance as of June 30, 2022

64,346,528

$

64

$

437,014

$

(334,971)

$

102,107

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Liquidia Corporation

Condensed Consolidated Statements of Cash Flows (unaudited)

(in thousands)

Six Months Ended June 30, 

    

2023

    

2022

Operating activities

  

  

Net loss

$

(35,262)

$

(25,390)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

  

Acquired in-process research and development

 

10,000

 

Stock-based compensation

 

5,051

 

5,832

Depreciation and amortization

 

1,158

 

1,953

Non-cash lease expense

 

187

 

146

Loss (gain) on disposal of property and equipment

(2)

1

Loss on extinguishment of debt

 

2,311

 

997

Non-cash interest expense (income)

 

2,376

 

109

Changes in operating assets and liabilities:

 

 

Accounts receivable, net

 

922

 

(763)

Prepaid expenses and other current assets

 

760

 

(115)

Other noncurrent assets

 

47

 

4

Accounts payable

 

(380)

 

111

Accrued expenses and other current liabilities

 

(755)

 

(721)

Operating lease liabilities

 

(434)

 

(375)

Net cash used in operating activities

 

(14,021)

 

(18,211)

Investing activities

 

 

  

Purchases of property, plant and equipment

 

(609)

 

(7)

Proceeds from the sale of property, plant and equipment

 

2

 

5

Net cash used in investing activities

 

(607)

 

(2)

Financing activities

 

 

  

Proceeds from revenue interest financing, net

 

31,814

 

Principal payments on long-term debt

 

(20,000)

 

(10,500)

Payments for debt prepayment and extinguishment costs

 

(2,190)

 

Payments on revenue interest financing liability

 

(500)

 

Proceeds from issuance of long-term debt with warrants, net

 

 

19,767

Principal payments on finance leases

 

(130)

 

(160)

Receipts from litigation financing

101

369

Proceeds from sale of common stock, net of underwriting fees and commissions

 

54,461

Proceeds from issuance of common stock under stock incentive plans

 

446

 

622

Net cash provided by financing activities

 

9,541

 

64,559

Net increase (decrease) in cash and cash equivalents

 

(5,087)

 

46,346

Cash and cash equivalents, beginning of period

 

93,283

 

57,494

Cash and cash equivalents, end of period

$

88,196

$

103,840

Supplemental disclosure of cash flow information

 

 

  

Cash paid for interest

$

360

$

650

Cash paid for operating lease liabilities

$

637

$

619

Non-cash increase in indemnification asset through accounts payable

$

101

$

231

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Liquidia Corporation

Notes to Condensed Consolidated Financial Statements (unaudited)

(tabular dollars in thousands)

1. Business

Description of the Business

We are a biopharmaceutical company focused on the development, manufacture, and commercialization of products that address unmet patient needs, with current focus directed towards the treatment of pulmonary hypertension (“PH”). We operate through our wholly owned operating subsidiaries, Liquidia Technologies, Inc. (“Liquidia Technologies”) and Liquidia PAH, LLC (“Liquidia PAH”), formerly known as RareGen, LLC (“RareGen”).

We currently generate revenue pursuant to a promotion agreement between Liquidia PAH and Sandoz Inc. (“Sandoz”), dated as of August 1, 2018, as amended (the “Promotion Agreement”), sharing profit derived from the sale of Sandoz’s substitutable generic treprostinil injection (“Treprostinil Injection”) in the United States. Liquidia PAH has the exclusive rights to conduct commercial activities to encourage the appropriate use of Treprostinil Injection. We employ a targeted sales force calling on physicians and hospital pharmacies involved in the treatment of pulmonary arterial hypertension (“PAH”) in the United States, as well as key stakeholders involved in the distribution and reimbursement of Treprostinil Injection. Strategically, we believe that our commercial presence in the field will enable an efficient base to expand from for the launch of YUTREPIA upon final approval, leveraging existing relationships and further validating our reputation as a company committed to supporting PAH patients.

We conduct research, development and manufacturing of novel products by applying our subject matter expertise in cardiopulmonary diseases and our proprietary PRINT® technology, a particle engineering platform, to enable precise production of uniform drug particles designed to improve the safety, efficacy and performance of a wide range of therapies. Through development of our own products and research with third parties, we have experience applying PRINT across multiple routes of administration and drug payloads including inhaled therapies, vaccines, biologics, nucleic acids and ophthalmic implants, among others.

Our lead product candidate is YUTREPIA for the treatment of PAH. YUTREPIA is an inhaled dry powder formulation of treprostinil designed with PRINT to improve the therapeutic profile of treprostinil by enhancing deep lung delivery while using a convenient, low resistance dry-powder inhaler (“DPI”) and by achieving higher dose levels than the labeled doses of current inhaled therapies. The United States Food and Drug Administration (“FDA”) tentatively approved our New Drug Application (“NDA”) for YUTREPIA for the treatment of PAH in November 2021. The FDA also confirmed that the clinical data in the NDA would support our pursuit of an amendment to our NDA to treat patients with pulmonary hypertension and interstitial lung disease (PH-ILD) upon the expiration of regulatory exclusivity in March 2024. We filed an amendment to our NDA to include PH-ILD as a labelled indication on July 24, 2023.

We are also developing L606, an investigational, liposomal formulation of treprostinil administered twice-daily with a short-duration next-generation nebulizer, which we licensed from Pharmosa. L606 is currently being evaluated in an open-label study in the United States for treatment of PAH with a planned pivotal study for the treatment of PH-ILD.

Risks and Uncertainties

We are subject to risks and uncertainties common to companies in the biotechnology industry, including, but not limited to, development by competitors of new technological innovations, dependence on third parties and key personnel, protection of proprietary technology, compliance with government regulations, and the ability to secure additional capital to fund operations.

The current global macro-economic environment is volatile, which may result in supply chain constraints and elevated rates of inflation. In addition, we operate in a dynamic and highly competitive industry and believes that changes in any of the following areas could have a material adverse effect on our future financial position, results of operations, or cash flows: the ability to obtain future financing; advances and trends in new technologies and industry standards; results of

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clinical trials; regulatory approval and market acceptance of our products; development of sales channels; certain strategic relationships; litigation or claims against our related to intellectual property, product, regulatory, or other matters; and our ability to attract and retain employees necessary to support our growth.

Product candidates we develop require approval from the FDA and/or other international regulatory agencies prior to commercial sales. There can be no assurance that our product candidates will receive the necessary approvals. If we are denied approval, approval is delayed, or we are unable to maintain approval, it could have a material adverse impact on our business, financial position and results of operations.

We rely on single source manufacturers and suppliers for the supply of our product candidates, which adds to the manufacturing risks we face. In the event of any failure by a supplier, we could be left without backup facilities. Any disruption from these manufacturers or suppliers could have a negative impact on our business, financial position and results of operations.

Recent Events

License Agreement with Pharmosa Biopharm

In June 2023, we entered into a License Agreement with Pharmosa Biopharm Inc (“Pharmosa”) pursuant to which we were granted an exclusive license in North America to develop and commercialize L606, an inhaled, sustained-release formulation of treprostinil currently being evaluated in a clinical trial for the treatment of pulmonary arterial hypertension (PAH) and pulmonary hypertension associated with interstitial lung disease (PH-ILD), and a non-exclusive license for the manufacture, development and use (but not commercialization) of such licensed product in most countries outside North America (the “Pharmosa License Agreement”).

Under the terms of the Pharmosa License Agreement, we will be responsible for development, regulatory and commercial activities of L606 in North America. Pharmosa will manufacture clinical and commercial supplies of the liposomal formulation through its global supply chain and support us in establishing a redundant global supply chain. In consideration for these exclusive rights, we paid Pharmosa an upfront license fee of $10 million and will pay Pharmosa potential development milestone payments tied to PAH and PH-ILD indications of up to $30 million, potential sales milestones of up to $185 million and two tiers of low, double-digit royalties on net sales of L606. Pharmosa will also receive a $10 million milestone payment for each additional indication approved after PAH and PH-ILD and each additional product approved under the license. We also retain the first right to negotiate for development and commercialization of L606 in Europe and other territories should Pharmosa seek a partner, subject to satisfaction of certain conditions as set forth in the Pharmosa License Agreement.

Concurrently with the execution of the Pharmosa License Agreement, we also entered into an Asset Transfer Agreement with Pharmosa pursuant to which Pharmosa will transfer its physical materials so that we can perform the necessary actions contemplated under the Pharmosa License Agreement.

Second and Third Amendments to Revenue Interest Financing Agreement

In June 2023 and July 2023, we entered into a Second Amendment and Third Amendment, respectively, to the Revenue Interest Financing Agreement (“RIFA”) with HealthCare Royalty Partners IV, L.P. (“HCR”), pursuant to which HCR moved $2.5 million from the fourth tranche to the second tranche such that HCR would fund a total of $10.0 million of the Investment Amount (as defined in the RIFA) under the second tranche. The $10.0 million was funded on July 27, 2023 and was used for the upfront license fee due to Pharmosa in connection with the transactions contemplated by the Pharmosa License Agreement. In addition, pursuant to the amendments, the third tranche of $35.0 million and fourth tranche of $22.5 million will now be funded only upon the mutual agreement of both HCR and us.

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2. Basis of Presentation, Significant Accounting Policies and Fair Value Measurements

Basis of Presentation

The unaudited interim condensed consolidated financial statements as of June 30, 2023 and for the three and six months ended June 30, 2023 have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) for interim financial reporting. These condensed consolidated financial statements are unaudited and, in the opinion of management, include all adjustments (consisting only of normal recurring adjustments and accruals) necessary for a fair statement of the results for the periods presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The year-end condensed consolidated balance sheet data was derived from our audited consolidated financial statements but does not include all disclosures required by GAAP. Operating results for the three and six months ended June 30, 2023 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2023. Certain information and footnote disclosures normally included in the annual consolidated financial statements prepared in accordance with GAAP have been omitted in accordance with the SEC’s rules and regulations for interim reporting. Our financial position, results of operations and cash flows are presented in U.S. Dollars.

The accompanying unaudited condensed consolidated financial statements and related notes should be read in conjunction with our audited consolidated financial statements for the year ended December 31, 2022, which are included in 2022 Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (the “2022 Annual Report on Form 10-K”).

Going Concern

In accordance with Accounting Standards Update (“ASU”) 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205-40), we have evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date that the condensed consolidated financial statements are issued.

Since inception, we have incurred recurring losses, including a net loss of $35.3 million for the six months ended June 30, 2023 and we had an accumulated deficit of $385.9 million as of June 30, 2023. We expect to incur significant expenses and operating losses for the foreseeable future as we seek regulatory approval and prepare for commercialization of any approved product candidates. These efforts require significant amounts of capital, adequate personnel and infrastructure, and extensive compliance-reporting capabilities. Even if our development efforts are successful, it is uncertain when, if ever, we will realize significant revenue from product sales. Additionally, the RIFA contains minimum cash covenants that requires us to maintain cash and cash equivalents in an amount at least equal to $7.5 million during the calendar year beginning on January 1, 2024 and at least equal to $15.0 million for the remainder of the payment term after the calendar year ended December 31, 2024. These conditions raise substantial doubt regarding our ability to continue as a going concern within one year after the date these consolidated condensed financial statements are issued.

Our future funding requirements will be heavily determined by the timing of the potential commercialization of YUTREPIA and the resources needed to support development of our product candidates. If we are unable to access the contingent Investment Amounts from the RIFA (see Note 11) or generate meaningful YUTREPIA product revenue by the second quarter of 2024, we will require additional capital. We have based these estimates on assumptions that may differ from actual results, and we could use our available resources sooner than expected. We may also require additional capital to pursue in-licenses or acquisitions of other product candidates. If we conclude that we require additional funding but are unable to obtain such funding, we could be required to delay, reduce, or eliminate research and development programs, product portfolio expansion, or future commercialization efforts, which could adversely affect our business prospects, or we may be unable to continue operations.

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Use of Estimates

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities, at the date of the financial statements, as well as the reported amounts of revenues and expenses during the period. These estimates are based on historical experience and various other assumptions believed to be reasonable under the circumstances. We evaluate our estimates on an ongoing basis, including those related to the valuation of stock-based awards, certain accruals, the revenue interest financing payable, and intangible and contract acquisition cost amortization, and makes changes to the estimates and related disclosures as our experience develops or new information becomes known. Actual results will most likely differ from those estimates.

Segment Information

GAAP requires segmentation based on an entity’s internal organization and reporting of revenue and operating income based upon internal accounting methods commonly referred to as the “management approach.” Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker (CODM), or decision-making group, in deciding how to allocate resources and in assessing performance. Our CODM is our Chief Executive Officer. We have determined that we have one operating and reporting segment.

Summary of Significant Accounting Policies

Our significant accounting policies are disclosed in Note 2 of the consolidated financial statements for the years ended December 31, 2022 and 2021, which are included in our 2022 Annual Report on Form 10-K. There have been no material changes to our significant accounting policies during the six months ended June 30, 2023.

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board under its accounting standards codifications (ASC) or other standard setting bodies and are adopted by us as of the specified effective date. For the six months ended June 30, 2023, there were no newly adopted accounting pronouncements that had a material impact on our condensed consolidated financial statements. As of June 30, 2023, there are no recently issued but not yet adopted accounting pronouncements that are expected to materially impact our condensed consolidated financial statements.

Cash, Cash Equivalents, and Concentration of Credit Risk

We consider all highly liquid investments with a maturity of three months or less at the date of purchase to be cash equivalents.

Financial instruments that potentially subject us to concentrations of credit risk consist of cash and cash equivalents. We are exposed to credit risk, subject to federal deposit insurance, in the event of default by the financial institutions holding our cash and cash equivalents to the extent of amounts recorded on the condensed consolidated balance sheet. As of December 31, 2022, all of our cash and cash equivalents were held with Silicon Valley Bank (“SVB”). Following the March 10, 2023 Federal Deposit Insurance Corporation takeover of SVB, substantially all of our cash and cash equivalents were moved to a different accredited financial institution. We have not experienced any losses on such accounts and do not believe that we are subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships. Such deposits have exceeded and will continue to exceed federally insured limits.

Accounts Receivable

Accounts receivable are stated at net realizable value and net of an allowance for credit losses as of each balance sheet date, if applicable. One customer accounted for 99% of our accounts receivable, net at June 30, 2023 and December 31, 2022. As of June 30, 2023 and December 31, 2022, we have not recorded an allowance for credit losses.

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Long-Lived Assets

We review long-lived assets, including definite-life intangible assets, for realizability on an ongoing basis. Changes in depreciation and amortization, generally accelerated depreciation and variable amortization, are determined and recorded when estimates of the remaining useful lives or residual values of long-term assets change. We also review for impairment when conditions exist that indicate the carrying amount of the assets may not be fully recoverable. In those circumstances, we perform undiscounted operating cash flow analyses to determine if an impairment exists. When testing for asset impairment, we group assets and liabilities at the lowest level for which cash flows are separately identifiable. Any impairment loss is calculated as the excess of the asset’s carrying value over its estimated fair value. Fair value is estimated based on the discounted cash flows for the asset group over the remaining useful life or based on the expected cash proceeds for the asset less costs of disposal. Any impairment losses would be recorded in the consolidated statements of operations. To date, no such impairments have occurred.

Goodwill

We assess goodwill for impairment at least annually as of July 1 or whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. For example, significant and unanticipated changes or our inability to obtain or maintain regulatory approvals for our product candidates, including the NDA for YUTREPIA, could trigger testing of our goodwill for impairment at an interim date. We have one reporting unit. We have the option to first assess qualitative factors to determine whether events or circumstances indicate it is more likely than not that the fair value of a reporting unit is greater than its carrying amount, in which case a quantitative impairment test is not required.

Per ASC 350, Intangibles Goodwill and Other, the quantitative goodwill impairment test is performed by comparing the fair value of the reporting unit with its carrying amount, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, goodwill is not impaired. An impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over the fair value up to the amount of goodwill allocated to the reporting unit. Income tax effects from any tax-deductible goodwill on the carrying amount of the reporting unit are considered when measuring the goodwill impairment loss, if applicable.

As of June 30, 2023, we concluded there were no events or changes in circumstances which indicated that the carrying amount of goodwill was not recoverable. We completed our annual impairment test as of July 1, 2023 and concluded that no impairments had occurred.

Royalty Interest Financing Payable

In January 2023, we recognized a liability related to the Revenue Interest Financing Agreement (the “RIFA”) with HealthCare Royalty Partners IV, L.P. (“HCR”) and HealthCare Royalty Management, LLC under ASC 470-10, Debt and ASC 835-30, Interest - Imputation of Interest. We recorded the initial funds received from HCR under the terms of the RIFA as a liability which will be accreted under the effective interest method upon the estimated amount of future royalty payments to be made pursuant to the RIFA. The issuance costs were recorded as a deduction to the carrying amount of the liability and will be amortized under the effective interest method over the estimated period in which the liability will be repaid. We have estimated the total amount of future revenue to be generated over the life of the RIFA, and a significant increase or decrease in these estimates could materially impact the liability balance and related interest expense. If the timing or amounts of any estimated future revenue and related payments change, we will prospectively adjust the effective interest and the related amortization of the liability and related issuance costs.

Revenue Recognition

We recognize revenue in accordance with ASC 606, Revenue from Contracts with Customers (“ASC 606”). The core principle of ASC 606 is that a company should recognize revenue to depict the transfer of promised goods or services to

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customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The following five steps are applied to achieve that core principle:

Step 1: Identify the contract with the customer
Step 2: Identify the performance obligations in the contract
Step 3: Determine the transaction price
Step 4: Allocate the transaction price to the performance obligations in the contract
Step 5: Recognize revenue when the company satisfies a performance obligation

In order to identify the performance obligations in a contract with a customer, we assess the promised goods or services in the contract and identify each promised good or service that is distinct.

If a good or service is not distinct, the good or service is combined with other promised goods or services until a bundle of goods or services is identified that is distinct.

The transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer. The consideration promised in a contract with a customer may include fixed amounts, variable amounts, or both.

Variable consideration is included in the transaction price only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. We evaluate any non-cash consideration, consideration payable to the customer, potential returns and refunds, and whether consideration contains a significant financing element in determining the transaction price.

Revenue is measured based on consideration specified in a contract with a customer. We recognize revenue when it satisfies a performance obligation by transferring control over a service to a customer. The amount of revenue recognized reflects estimates for refunds and returns, which are presented as a reduction of Accounts receivable where the right of setoff exists.

Research and Development Expense

Research and development costs are expensed as incurred and include direct costs incurred to third parties related to the salaries of, and stock-based compensation for, personnel involved in research and development activities, contractor fees, administrative expenses and allocations of research-related overhead costs. Administrative expenses and research-related overhead costs included in research and development expense consist of allocations of facility and equipment lease charges, depreciation and amortization of assets and insurance directly related to research and development activities. In-process research and development assets with no future alternative use acquired are expensed under the in accordance with ASC 730, Research and Development.

Stock-Based Compensation

We estimate the grant date fair value of stock-based awards and amortize this fair value to compensation expense over the requisite service period or the vesting period of the respective award. In arriving at stock-based compensation expense, we estimate the number of stock-based awards that will be forfeited due to employee turnover. The forfeiture assumption is based primarily on turn-over historical experience. If the actual forfeiture rate is higher than the estimated forfeiture rate, then an adjustment will be made to increase the estimated forfeiture rate, which will result in a decrease to the expense recognized in our financial statements. If the actual forfeiture rate is lower than the estimated forfeiture rate, then an adjustment will be made to lower the estimated forfeiture rate, which will result in an increase to expense

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recognized in our financial statements. The expense we recognize in future periods will be affected by changes in the estimated forfeiture rate and may differ from amounts recognized in the current period. See Note 8.

Net Loss Per Share

Basic net loss per share is calculated by dividing net loss attributable to common stockholders by the weighted average shares outstanding during the period, without consideration of common stock equivalents.

Diluted net loss per share is calculated by adjusting weighted average shares outstanding for the dilutive effect of common stock equivalents outstanding for the period, determined using the treasury-stock method. Due to their anti-dilutive effect, the calculation of diluted net loss per share excludes the following common stock equivalent shares:

Three Months Ended

Six Months Ended

June 30, 

June 30, 

2023

2022

2023

2022

Stock Options

    

9,506,827

    

7,131,419

    

9,454,756

    

7,093,120

Restricted Stock Units

 

1,773,919

 

401,035

 

1,682,701

 

383,307

Warrants

450,000

450,000

450,000

440,331

Total

 

11,730,746

 

7,982,454

 

11,587,457

 

7,916,758

Certain common stock warrants are included in the calculation of basic and diluted net loss per share since their exercise price is de minimis.

Fair Value Measurements

ASC 825 Financial Instruments defines fair value as the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants (an exit price). As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. ASC 825 establishes a three-tiered approach for valuation of financial instruments, which requires that fair value measurements be classified and disclosed in one of three tiers, whether or not recognized on our condensed consolidated balance sheets at fair value. The fair value hierarchy defines a three-level valuation hierarchy for disclosure of fair value measurements as follows:

Level 1 — Quoted prices in active markets for identical assets or liabilities;

Level 2 — Inputs other than quoted prices included in active markets that are observable for the asset or liability, either directly or indirectly; and

Level 3 — Unobservable inputs for the asset and liability used to measure fair value, to the extent that observable inputs are not available.

The categorization of a financial instrument within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The following table presents the placement in the fair value hierarchy of financial assets and liabilities measured at fair value as of June 30, 2023 and December 31, 2022:

    

Quoted

    

Significant

    

    

Prices in

Other

Significant

Active

Observable

Unobservable

Markets

Inputs

Inputs

Carrying

June 30, 2023

(Level 1)

(Level 2)

(Level 3)

Value

Money market funds (cash equivalents)

$

82,270

$

$

$

82,270

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Quoted

    

Significant

    

    

Prices in

Other

Significant

Active

Observable

Unobservable

Markets

Inputs

Inputs

Carrying

December 31, 2022

(Level 1)

(Level 2)

(Level 3)

Value

Money market funds (cash equivalents)

$

92,283

$

$

$

92,283

Money market funds are included in cash and cash equivalents on our condensed consolidated balance sheet and are classified within Level 1 of the fair value hierarchy since they are valued using quoted market prices.

The carrying amounts reflected in our condensed consolidated balance sheets for cash, accounts receivable, prepaid expenses and other current assets, accounts payable and accrued expenses and other liabilities approximate their fair values due to their short-term nature. The carrying value of long-term debt and the revenue interest financing payable approximate fair value as the respective interest rates are reflective of current market rates on debt with similar terms and conditions. In addition, the revenue interest financing payable is updated with the expected amount to be paid back each reporting period based on the contractual terms and current projections.

3. Property, Plant, and Equipment

Property, plant and equipment consisted of the following:

    

June 30, 

    

December 31, 

2023

2022

Lab and build-to-suit equipment

$

6,603

$

6,257

Office equipment

 

19

 

19

Furniture and fixtures

 

134

 

134

Computer equipment

 

457

 

291

Leasehold improvements

 

11,409

 

11,409

Construction-in-progress

 

252

 

155

Total property, plant and equipment

 

18,874

 

18,265

Accumulated depreciation and amortization

 

(14,703)

 

(14,114)

Property, plant and equipment, net

$

4,171

$

4,151

We recorded depreciation and amortization expense related to property, plant and equipment of $0.3 million and $0.4 million for the three months ended June 30, 2023 and 2022, respectively, and of $0.6 million and $0.8 million for the six months ended June 30, 2023 and 2022, respectively.

4. Contract Acquisition Costs and Intangible Asset

Contract acquisition costs and intangible asset are summarized as follows:

    

June 30, 2023

    

December 31, 2022

Gross Carrying Amount

Accumulated Amortization

Net Carrying Amount

Gross Carrying Amount

Accumulated Amortization

Net Carrying Amount

Contract acquisition costs

$

12,980

$

(4,773)

$

8,207

$

12,980

$

(4,376)

$

8,604

Intangible asset

$

5,620

$

(2,066)

$

3,554

$

5,620

$

(1,894)

$

3,726

We are amortizing the value of the contract acquisition costs and intangible asset on a pro-rata basis based on the estimated total revenue or net profits to be recognized over the period from November 18, 2020 through December 2032, the termination date of the Promotion Agreement (see Note 2-Revenue Recognition for our accounting policies). Amortization of contract acquisition costs is recorded as a reduction of revenue and amortization of the intangible asset is recorded as cost of revenue.

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We recorded amortization related to the contract acquisition costs of $0.2 million and $0.4 million for the three months ended June 30, 2023 and 2022, respectively, and of $0.4 million and $0.8 million for the six months ended June 30, 2023 and 2022, respectively. We recorded amortization related to the intangible asset of $0.1 million and $0.2 million for the three months ended June 30, 2023 and 2022, respectively, and of $0.2 million and $0.3 million for the six months ended June 30, 2023 and 2022, respectively. Annual amortization over the next five years is expected to be lower than prior years primarily due to an amendment to the Promotion Agreement entered into during the fourth quarter of 2022, which extended the term of the Promotion Agreement by five years.

5. Indemnification Asset with Related Party and Litigation Finance Payable

On June 3, 2020, Liquidia PAH entered into a litigation financing arrangement (the “Financing Agreement”) with Henderson SPV, LLC (“Henderson”). Liquidia PAH, along with Sandoz (collectively the “Plaintiffs”), are pursuing litigation against United Therapeutics Corporation (“United Therapeutics”) and, prior to entering into a binding settlement term sheet with Smiths Medical ASC (“Smiths Medical”) in November 2020, were pursuing litigation against Smiths Medical (collectively, the “RareGen Litigation”). Under the Financing Agreement, Henderson will fund Liquidia PAH’s legal and litigation expenses (referred to as “Deployments”) in exchange for a share of certain litigation or settlement proceeds. Deployments received from Henderson are recorded as a Litigation finance payable.

Litigation proceeds will be split equally between Liquidia PAH and Sandoz. Unless there is an event of default by Henderson, litigation proceeds received by Liquidia PAH must be applied first to repayment of total Deployments received. Litigation proceeds in excess of Deployments received are split between Liquidia PAH and Henderson according to a formula. Unless there is an event of default by PBM, proceeds received by Liquidia PAH are due to PBM as described further below.

On November 17, 2020, Liquidia PAH entered into a Litigation Funding and Indemnification Agreement (“Indemnification Agreement”) with PBM. PBM is considered to be a related party as it is controlled by a major stockholder (which beneficially owns approximately 9.3% of Liquidia Corporation Common Stock as of August 1, 2023) who is also a member of our Board of Directors.

Under the terms of the Indemnification Agreement, PBM now controls the litigation, with Liquidia PAH’s primary responsibility being to cooperate to support the litigation proceedings as needed. The Indemnification Agreement provides that Liquidia PAH and its affiliates will not be entitled to any proceeds resulting from, or bear any financial or other liability for, the RareGen Litigation unless there is an event of default by PBM. Any Liquidia PAH litigation expenses not reimbursed by Henderson under the Financing Agreement will be reimbursed by PBM. Any proceeds received which Henderson is not entitled to under the Financing Agreement will be due to PBM.

The Indemnification Asset is increased as we record third party legal and litigation expenses related to the United Therapeutics and Smiths Medical litigation.

As of June 30, 2023 and December 31, 2022, the Indemnification Asset and Litigation Finance Payable were classified as long-term assets and liabilities, respectively as it is considered unlikely that the RareGen Litigation would conclude prior to June 30, 2024.

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6. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following:

June 30, 

December 31, 

2023

    

2022

Accrued compensation

$

2,191

$

2,862

Accrued research and development expenses

1,181

1,757

Accrued upfront license fee

10,000

Accrued other expenses

1,395

903

Total accrued expenses and other current liabilities

$

14,767

$

5,522

7. Stockholders’ Equity

Common Stock

Issuance of Common Stock on April 18, 2022 from an Underwritten Public Offering

On April 12, 2022, we sold 11,274,510 shares of our common stock in an underwritten registered public offering at an offering price of $5.10 per share (the “Offering”).

The Offering closed on April 18, 2022, and we received net proceeds of approximately $54.5 million from the sale of the shares, after deducting the underwriting discounts and commissions and other offering expenses.

Caligan Partners LP (“Caligan”), our largest stockholder, and Paul B. Manning, a member of our Board of Directors, participated in the Offering and purchased shares of common stock in an aggregate amount of $11.0 million at the public offering price per share and on the same terms as the other purchasers in the Offering. Caligan purchased 1,764,705 shares of common stock in the Offering for an aggregate purchase price of $9.0 million and Paul B. Manning purchased 392,156 shares of common stock in the Offering for an aggregate purchase price of $2.0 million.

Issuance of Common Stock on March 31, 2022 from Merger Transaction

On November 18, 2020 (the “Closing Date”), we completed the acquisition of RareGen as contemplated by that certain Agreement and Plan of Merger, dated as of June 29, 2020, as amended by a Limited Waiver and Modification to the Merger Agreement, dated as of August 3, 2020 (the “Merger Agreement”). On the Closing Date, an aggregate of 5,550,000 shares of our common stock, were issued to RareGen members in exchange for all of the issued and outstanding RareGen equity. On March 31, 2022, an aggregate of 616,666 shares of our common stock, which were held back on the Closing Date for indemnification purposes, were issued to RareGen members.

Warrants

During the six months ended June 30, 2023 and 2022, no warrants to purchase shares of common stock were exercised.

Outstanding warrants consisted of the following as of June 30, 2023:

Number of

   

warrants

   

Exercise Price

   

Expiration Date

A&R SVB Warrant (see Note 12)

250,000

$

5.14

January 6, 2032

SVB Warrant - Initial Tranche (see Note 12)

100,000

$

3.05

February 26, 2031

SVB Warrant - Term B and Term C Tranches (see Note 12)

100,000

$

n/a

February 26, 2031

Other warrants

65,572

$

0.02

December 31, 2026

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8. Stock-Based Compensation

2020 Long-Term Incentive Plan

Our 2020 Long-Term Incentive Plan (the “2020 Plan”) provides for the granting of stock appreciation rights, stock awards, stock units, and other stock-based awards and for accelerated vesting under certain change of control transactions. The number of shares of our common stock available for issuance under the 2020 plan will automatically increase on January 1 of each year through 2030, by an amount equal to the smaller of (a) 4% of the number of shares of common stock issued and outstanding on the immediately preceding December 31, or (b) an amount determined by the Board of Directors (the “Evergreen Provision”). On January 1, 2023, the number of shares of common stock available for issuance under the 2020 Plan automatically increased by 2,580,716 shares pursuant to the Evergreen Provision. As of June 30, 2023, 209,087 shares of common stock were available for issuance under the 2020 Plan.

The 2020 Plan replaced all prior equity award plans and such plans have been discontinued, however, the outstanding awards will continue to remain in effect in accordance with their terms. Shares that are returned under these prior plans upon cancellation, termination or expiration of awards outstanding will not be available for grant under the 2020 Plan. As of June 30, 2023, a total of 669,576 shares of common stock were reserved for issuance related to the remaining outstanding equity awards granted under the prior plans.

2022 Inducement Plan

On January 25, 2022, the Board of Directors approved the adoption of our 2022 Inducement Plan (the “2022 Inducement Plan”). The 2022 Inducement Plan was recommended for approval by the Compensation Committee of the Board (the “Compensation Committee”), and subsequently approved and adopted by the Board of Directors without stockholder approval pursuant to Rule 5635(c)(4) of the rules and regulations of The Nasdaq Stock Market, LLC (the “Nasdaq Listing Rules”).

310,000 shares of our common stock were reserved for issuance pursuant to equity awards that may be granted under the 2022 Inducement Plan, and the 2022 Inducement Plan will be administered by the Compensation Committee. In accordance with Rule 5635(c)(4) of the Nasdaq Listing Rules, equity awards under the 2022 Inducement Plan may only be made to an employee who has not previously been an employee or member of the Board of Directors, or following a bona fide period of non-employment by us, if he or she is granted such equity awards in connection with his or her commencement of employment with us and such grant is an inducement material to his or her entering into employment with us. As of June 30, 2023, a total of 21,650 shares were available for issuance under the 2022 Inducement Plan.

Employee Stock Purchase Plan

In November 2020, stockholders approved the Liquidia Corporation 2020 Employee Stock Purchase Plan (the “ESPP”). The number of shares of our common stock available for issuance under the ESPP will automatically increase by the lesser of (a) 1.0% of the number of shares of common stock issued and outstanding on the immediately, (b) 150,000 shares, or (c) an amount determined by the Board of Directors. On January 1, 2023, the number of shares of common stock available for issuance under the ESPP increased by 150,000 shares. As of June 30, 2023, a total of 616,778 shares of common stock are reserved for issuance under the ESPP. The ESPP allows eligible employees to purchase shares of our common stock at a discount through payroll deductions, subject to plan limitations. Unless otherwise determined by the administrator, the common stock will be purchased for the accounts of employees participating in the ESPP at a price per share that is 85% of the lesser of the fair market value of our common stock on the first and last trading day of the offering period. During the six months ended June 30, 2023 and 2022, 81,281 and 5,017 shares were issued under the ESPP, respectively.

CEO Options

During December 2020, we issued a stock option grant to our then new Chief Executive Officer, Damian deGoa, to purchase up to 2,000,000 shares of our common stock (the “CEO Option”) at an exercise price of $3.00 per share. The CEO Option was issued outside of the 2020 Plan and 1,375,000 options vested in the fourth quarter of 2021 upon the

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achievement of certain milestones and the passage of time and ceased vesting upon the termination of Mr. deGoa’s employment on January 31, 2022. However, the CEO Option will remain exercisable so long as Mr. deGoa remains a member of our Board of Directors in accordance with his Separation Agreement. This change to vesting terms was treated as a modification of the original award resulting in a stock-based compensation charge of $2.9 million during the three months ended March 31, 2022.

Stock-Based Compensation Valuation and Expense

We account for employee stock-based compensation plans using the fair value method. The fair value method requires us to estimate the grant-date fair value of stock-based awards and amortize this fair value to compensation expense over the requisite service period or vesting term. The fair value of each option grant is estimated using a Black-Scholes option-pricing model.

For restricted stock units (“RSUs”), the grant-date fair value is based upon the market price of our common stock on the date of the grant. This fair value is then amortized to compensation expense over the requisite service period or vesting term.

Total stock-based compensation expense recognized for employees and non-employees was as follows:

Three Months Ended

Six Months Ended

June 30, 

June 30, 

By Expense Category:

    

2023

    

2022

    

2023

    

2022

Research and development

$

578

$

337

$

1,159

$

720

General and administrative

 

1,921

 

1,310

 

3,892

 

5,112

Total stock-based compensation expense

$

2,499

$

1,647

$

5,051

$

5,832

The following table summarizes the unamortized compensation expense and the remaining years over which such expense would be expected to be recognized, on a weighted average basis, by type of award:

As of June 30, 2023

Weighted

Average

Remaining

Recognition

    

Unamortized

    

Period

Expense

(Years)

Stock options

$

18,455

 

2.7

Restricted stock units

$

9,634

3.4

Fair Value of GraphicStock Options Granted and Purchase Rights Issued under the ESPP

We use the Black-Scholes option-pricing model to determine the fair value of stock options granted and purchase rights issued under the ESPP.

The following table summarizes the assumptions used for estimating the fair value of stock options granted under the Black-Scholes option-pricing model:

Six Months Ended

June 30, 

    

2023

    

2022

Expected dividend yield

Risk-free interest rate

 

3.46% - 3.99%

 

1.46% - 2.34%

Expected volatility

 

91% - 95%

 

90% - 93%

Expected life (years)

 

5.8 - 6.1

 

5.8 - 6.1

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The weighted average fair value for options granted during the six months ended June 30, 2023 and 2022 was $5.09 and $4.19 per share, respectively.

The following table summarizes the assumptions used for estimating the fair value of purchase rights granted to employees under the ESPP under the Black-Scholes option-pricing model:

Six Months Ended

June 30, 

    

2023

    

2022

Expected dividend yield

Risk-free interest rate

5.20%

0.69%

Expected volatility

64%

80%

Expected life (years)

0.50

0.50

The following table summarizes stock option activity during the six months ended June 30, 2023:

    

    

    

Weighted

    

Weighted

Average

Average

Contractual

Aggregate

Number of

Exercise

Term

Intrinsic

Shares

Price

(in years)

Value

Outstanding as of December 31, 2022

 

8,398,262

$

4.49

 

  

 

  

Granted

 

1,373,746

6.56

 

  

 

  

Exercised

 

(31,620)

3.50

 

  

 

  

Cancelled

 

(145,554)

5.58

 

  

 

  

Outstanding as of June 30, 2023

 

9,594,834

$

4.77

 

8.2

$

30,939

Exercisable as of June 30, 2023

 

4,817,133

$

4.34

 

7.6

$

18,171

Vested and expected to vest as of June 30, 2023

 

9,264,881

$

4.77

 

8.2

$

29,949

The aggregate intrinsic value of stock options in the table above represents the difference between the $7.85 closing price of our common stock as of June 30, 2023 and the exercise price of outstanding, exercisable, and vested and expected to vest in-the-money stock options.

Restricted Stock Units

Restricted Stock Units (“RSUs”) represent the right to receive shares of our common stock at the end of a specified time period or upon the achievement of a specific milestone. RSUs can only be settled in shares of our common stock. RSUs generally vest over a four-year period similar to stock options granted to employees.

A summary of unvested RSU awards outstanding as of June 30, 2023 and changes during the six months ended June 30, 2023 is as follows:

    

    

    

Weighted

Average

Grant-Date

Number of

Fair Value

RSUs

(per RSU)

Unvested as of December 31, 2022

 

407,726

$

5.57

Granted

 

1,483,166

 

6.48

Vested

 

(109,569)

 

6.00

Forfeited

 

(56,034)

 

6.22

Unvested as of June 30, 2023

 

1,725,289

$

6.30

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9. Revenue From Contracts With Customers

In August 2018, we entered into a Promotion Agreement with Sandoz under which have the exclusive rights to conduct commercial activities to encourage the appropriate use of Treprostinil Injection for the treatment of patients with PAH in the United States. We paid Sandoz $20 million at the inception of the Promotion Agreement in consideration for these rights. In exchange for conducting these commercial activities, we are entitled to receive a share of Net Profits (as defined within the Promotion Agreement) based on specified profit levels. The share of Net Profits received is subject to adjustments from Sandoz for certain items such as distributor chargebacks, rebates, inventory returns, inventory write-offs and other adjustments. We expect to refund certain amounts to Sandoz through a reduction of the cash received from future Net Profits generated under the Promotion Agreement. As of June 30, 2023, a $0.5 million refund liability is offset against accounts receivable from Sandoz related to expected refund amounts. Approximately 99% of revenue during three and six months ended June 30, 2023 was generated from the Promotion Agreement.

10. Leases

Operating Leases

We are party to a non-cancelable operating lease for our laboratory and office space in Morrisville, North Carolina. The lease expires on October 31, 2026 with an option to extend for an additional period of five years with appropriate notice. We have not included the optional extension period in the measurement of lease liabilities because it is not reasonably certain that we will exercise the option to extend. The payments under this lease are subject to escalation clauses. Operating lease cost is allocated between research and development and general and administrative expenses based on the usage of the leased facilities. The related right-of-use assets are amortized on a straight-line basis over the lesser of the lease term or the estimated useful life of the asset.

Finance Leases

We lease specialized laboratory equipment under finance leases. We do not have access to certain inputs used by our lessors to calculate the rate implicit in its finance leases and, as such, use our estimated incremental borrowing rate at the time of lease inception for the discount rate applied to our finance leases. The incremental borrowing rate used on finance leases was 6.5%. Certain finance leases also include options to purchase the leased property. We recognize all such purchase options as part of our right-of-use assets and lease liabilities if we are reasonably certain that such purchase options will be exercised.

Lease Balances, Costs, and Future Minimum Payments

Leases with an initial term of 12 months or less are not recorded on the balance sheet. As of June 30, 2023, we have not entered into any short-term leases. For lease agreements entered into or reassessed after the adoption of ASC 842 Leases, we combine lease and non-lease components, if any. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Our lease cost is reflected in the accompanying condensed statements of operations and comprehensive loss as follows: