Good afternoon, ladies and gentlemen. My name is Janisha, and I will be your conference operator today. I would like to welcome everyone to the Liquidia Technologies First Quarter 2020 Financial Results and Corporate Update Conference Call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session, instructions will be provided at that time for you to queue up for questions. [Operator Instructions] I would like to remind everyone that this conference is being recorded. I will now hand the call over to Jason Adair, Vice President, Corporate Development and Strategy.

Thank you and good afternoon. Welcome to Liquidia's first quarter 2020 financial results and corporate update conference call. 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 at www.sec.gov or from Liquidia's website at liquidia.com, for information concerning risk factors that could cause such differences that otherwise affect the company. I would now like to turn the call over to Neal Fowler, CEO of Liquidia.

Thanks Jason and good afternoon and thank you to everyone for joining us. On the call with me today are Rich Katz, our Chief Financial Officer and Dr. Rob Roscigno, Senior Vice President of Product Development and Program Lead for LIQ861. I will summarize our progress and recent accomplishments in 2020. Rich will provide a brief summary of financial results for the first quarter. And then I will conclude our prepared remarks and open the call for your questions. Like most of the world, we have endured a new way of living and working during the eight weeks since our last call. I'm happy to report that despite some logistical challenges that the world's been facing in a workforce deployed at home, our team has continued to successfully deliver on its objectives for 2020. First and foremost, we submitted and the FDA has accepted our NDA for LIQ861. As a reminder, 861 is an inhaled dry powder formulation of treprostinil, a prostacyclin analog used to treat pulmonary arterial hypertension, or PAH, by targeting the pulmonary arteries. We believe that 861 has the potential to maximize the therapeutic benefits of treprostinil by safely delivering higher doses directly into the lungs using a convenient, palm-sized dry powder inhaler. In April, the FDA confirmed a PDUFA goal date of November 24, 2020. We feel well prepared to support the agency's review during this period. We feel fortunate to have completed all of the work required to submit the NDA prior to any impact from the COVID pandemic. All U.S. patients enrolled in an open-label extension study, continued to receive treatment and European patients enrolled in a hemodynamic dose response study are being monitored. However, in light of the pandemic in an interest of patient safety, we have paused enrollment in the European trial…

Thank you, Neal. Our research and development expenses were $10.8 million for the three months ended March 31, 2020 and that approximated the amount of $10.7 million also in the first quarter of 2019. The R&D expenses for consulting costs primarily related to our NDA were $1.2 million higher in first quarter 2020 versus first quarter of 2019, and that increase was primarily offset by a decrease of about $0.8 million from a reclassification of costs that were preparing for potential commercialization and certain insurance costs to G&A from R&D in the first quarter of 2020 versus the first quarter of 2019. And G&A expenses were $3.8 million for the first quarter of 2020, compared to $3 million for the first quarter of 2019, that increase of $0.8 million was a result of the reclassification that I just mentioned. Our interest income was $0.1 million for the first quarter of 2020, and that compared $0.1 million during the first quarter of 2019, so essentially even. Our interest expense was $0.3 million in the first quarter 2020, and that compared with $0.2 million for the first quarter of 2019, primarily due to higher levels of debt during the first quarter of 2020 as compared with the first quarter of 2019. So putting it together, the net loss was $14.8 million in the first quarter of 2020, and that compared with $13.8 million for the first quarter of 2019, the increase of $1 million was primarily due to the increase in consulting costs in relation to our R&D program, particularly the NDA for 861. Cash and cash equivalents totaled $40.1 million at the end of March and there were 28.4 million shares outstanding at that time. And as discussed on previous calls, I'll also mentioned that we continue to seek to strengthen our balance sheet. We are evaluating multiple funding options to do that including dilutive and non-dilutive financings, as well as partnerships – potential partnerships with companies that may offer either strategic or commercial or both synergies with 861. Let me now turn the call back to Neal.

Thanks a lot, Rich. As we look back at the last quarter and the unprecedented challenges we faced globally, we're really proud of the fact we were able to press forward and hit our milestones. I thought I'd make just a couple of comments even a little beyond Liquidia. On that – our accomplishments though great for us as a company pale in comparison to the challenge and sacrifice that many of our trial investigators and their staff face every day in the face of this pandemic. COVID-19 is a respiratory disease, and these are the people who unselfishly go into harm's way every day for people in need. So I just want to thank them not just for their commitment to advancing the science behind our new therapy, but mostly for their courage in the face of danger to ensure the health and healing of our communities. I also want to highlight the fact that we're part of an industry that has really stepped up in a time of need. We've certainly seen many examples of this going back to the 1940s during World War II with penicillin, the action that was taken during the HIV crisis and here we are decades later doing it again, through local support, donations of money and supplies and the rapid development of testing and/or potential treatments and vaccines. Our industry is stepping up again and that is something that we should all be proud to be a part of. The same holds true for Liquidia and regardless of the duration of this pandemic, we will continue to ensure the safety of our team, support the recovery and regrets of our community and stay focused on our efforts to improve the lives of patients. At this point, I'll now turn the call over to the operator to take your questions. Thank you.

[Operator Instructions] And we do have a question from the line of Liana Moussatos from Wedbush.

Thank you for taking my question. Can you…

Hi, Liana.

Hey. You mentioned in your prepared remarks 2016 IPR for the two patents, can you remind us about that? And how it might reduce your hurdle to launch after the November 24th PDUFA? And then I have two questions about finances. One is, how should we think about Q2 OpEx and the rest of the year OpEx versus Q1? And what's the cash runway?

Sure. Liana, happy to handle those questions. I'm also pleased to have on the line with us Shawn Glidden who is our Internal Counsel and maybe I'll start by having Shawn speak to your IPR questions. Shawn?

Thanks Neal. Liana, the 2016 IPR that we referenced was an IPR brought that study med in its litigation with the United therapeutics over a treprostinil processing patent, that particular IPR and the particular patent subject to that IPR is a parent patent application – parent patent to the two patents that we have filed IPR petitions against. The claims are substantially the same subject matter. And we believe that substantially the same prior art will find those patents having the same fate.

And how. Okay, and the processing of that – are you able – are you confident that you can launch shortly after the November 24th PDUFA data or you anticipate some delays because of this litigation?

Well, Liana, at this point in time, we are not subject to a Hatch-Waxman Act. So there is no delay at this moment, but we have taken steps to prepare for any potential activity by our competitor.

Okay. So there is a way to launch even if the competitor does – has some – initiate some litigation.

Well, as the 505(b)(2) applicant, our competitor – the references to drug holder has a period of time, a 45 day window after our paragraph IV certification notice to bring on a patent infringement action for patents filed on the Orange Book. If the reference listed drug holder files action under a Hatch-Waxman Act that triggers an automatic 30 months day, which is a 30 month or the shorter of 30 months or dismissal of the patent case. So at this point in time, we're not under a Hatch-Waxman Act Litigation, but we've taken actions to – as needed to challenge the patents that, that might be subject of Hatch-Waxman Act.

And what would be the 45 day deadline would be?

We served our paragraph IV notice in late April, so the 45 day period ends in early June.

Okay. Thank you for that. And then I have financial questions, Rich.

Yes, Rich. If you could…

Yes sure, Liana. The cash burn will be a little bit less in Q2 versus Q1, we have some expenses that we incur in Q1, particularly annual pay cycle bonuses that occur at that time. And we're also taking some steps to reduce our costs in light of everything that's going on the world today. And so I think you can expect some modest decrease in Q2 versus Q1 for operating expenses. In terms of cash runway, because of the steps that we're taking and I should mention that none of these steps in any way impact our timeline with regard to the NDA and working with the FDA on all the things we need to work with to get an approval. But some other areas that we're being more conservative and that'll bring our cash runway comfortably through October without tripping the covenant that we have on our debt, which is, I think you may remember, it's an $8.5 million minimum cash covenant. And it – certainly if you go beyond that, but that would be a conservative view that we would be comfortably through October.

Okay. And what about Q3 and Q4 for OpEx?

Yes. Similar to Q2, so somewhat stepped down from expectations – from what we just did in Q1. Again, without impacting anything with regard to the 861 development program, I should mention as was discussed, we're trying to make sure that we extend the cash runway as long as possible, at the same time we are actively looking at alternatives for raising additional capital whether it’d be dilutive, non-dilutive in the form of partnerships or potentially debt work, we're evaluating all those alternatives in order to make sure that the company remains well-funded.

What kind of partnerships are you considering?

Well, we – frankly, we would – we consider a broad range and so really all the way from licensing type opportunities to opportunities where we're much more involved. And so those are the range, but we haven't made any determinations at this point. I think discussions have been going on for some time, we're working with Jefferies as our financial advisor. So we really don't have anything more to say at this point except that is an area that we're certainly working on.

Thank you very much.

Of course.

And your next question comes from the line of Ken Cacciatore from Cowen and Company.

Hey guys, thanks for taking the question. Just on the litigation, the potential litigation if the patents are asserted in June. Can you just talk about timing of – I'm going to – I guess I would imagine you could do a summary judgment motion. Can you just talk about how long it would take to get something like that on file? And typically speaking how long it takes to get assigned a judge and get something like that ruled upon before you would go into kind of more broader litigation if that was either accepted or rejected? And then also can you just talk about the marketing behind a product like this, in terms of kind of what kind of effort you would need, it's more specialty in nature. So just wondering could this be done more efficiently than many type of launches that we've seen in the past? And how folks like us should be viewing it vis à vis other drug launches, obviously it's in traditional. So wondering how efficiently could we execute a proper launch for 861? Thanks.

Sure, Ken. Thanks a lot for that. Maybe Shawn, I'll let you start and I'll handle the commercial question.

Sure, thanks. Hi, Ken. So your first question regarding potential litigation, it's always difficult to answer, especially when litigation has not been filed. As you know, different jurisdictions and different venues have different dockets and different amount of time, especially during the period of COVID, what impact might that have on different courts dockets and schedulings, it's just too hard to tell right now. But as far as the general timeline with other actions besides, specific court, the IPR process itself is a pretty well oiled machine within the patent office of an 18 months from filing petitions to written opinion outcome from the patent office. So that timeline a little more certain, but it would just too early to be able to comment on what the timeline and court proceeding.

And Ken, on your commercial question which is a good one, yes, this is what we would call kind of more of a specialty launch versus like a primary care launch that a lot of us are so used to seeing in the industry. So given that the patient number here, compared to a lot of diseases on the smaller end, it's a much more manageable group of physicians we need to get to commercially. If you kind of benchmark what is out there with a product like this, typically that would be on the order of about 50 sales representatives for the U.S. I would tell you that we are looking at everything between zero and that as we go forward because there are even more innovative ways we're looking at – doing that to potentially even do maybe slightly less than that. And what's nice about this disease from a pure commercial aspect is it's a very engaged patient population as you would expect as well, given the disease. So it's an active group that we target both from a patient perspective, from a physician perspective. And as these are not inexpensive therapies, a payer perspective. So a lot of our effort will be focused on that. It's a much more efficient type of launch than you would typically see across the industry and which is to be blunt. One of the reasons we were so attracted to this area originally as well, being a small company and not wanting to go after a much larger type of launch from the beginning too. So we look forward to it, Rob Roscigno and his team have done a fantastic job laying a lot of groundwork down in our connectivity with the PAH community. We've been very active on the patient front and really look forward to bringing 861 to the market.

Thanks so much.

Sure.

And your next question comes from the line of Roger Song from Jefferies.

Hey, thank you. Thank you for taking the question. So I have two quick questions. So one is – so we noticed this United Therapeutics, they are about to readout a Phase 3 CAR-T kind of study later this year. So given its kind of a little bit – kind of about one or two years behind 861 so how would you leverage this first mover advantage if you are able to launch this kind of without the litigation kind of stream?

Yes. And Roger, this is Neal. Just to make sure I'm clear. Are you speaking about their dry powder device coming along behind 861, is that the specific question?

Yes, that's correct.

Yes. Okay, great. Great. Thanks for your question. It's good to get to speak with you. Yes. First off, it's hard for us to opine too much about where they are in terms of their development, other than the same things we're all hearing from their corporate updates. But it does appear to your point that we have a lead, which we want to take advantage of here obviously in terms of getting to the market. For us it's about establishing the convenience first and foremost of a DPI versus a nebulizer. And that's pretty well documented that we've talked about the experience for the patient. We've seen this in our clinical data. Certainly also in – the patients perceive quality of life in all of our market research has pointed to what a big advantage that is for the patient. But I also think very importantly in a go to our clinical data here out of the INSPIRE trial. One of the things that PRINT has brought to bear is the fact that we have a wide range of dosing options for the patient. Given that it is a progressive disease obviously one of the things that we're very encouraged by as you can give much higher doses with 861 than you're able to give what the nebulizer you'll recall. Our dosing now may – is currently at 200 micrograms and we still do not know the MTD of 861. So this is important for patients because typically the next stop in their disease progression would be with some type of injectable type of medication, which is obviously not a good quality of life kind of play. And the ability for 861 to play a much longer in the disease is certainly a breakthrough for the patient and something that we will continue to push. And also, as was mentioned in my earlier comments, the fact that physicians are so willing to use this even in first-line therapy now. It tells us that there's an ability also to move upstream in the disease earlier because now the nebulizer you kind of held off on until the orals had done everything they could. But the simplicity and elegance of an 861 allows you to use it earlier in the disease process. So our push will obviously be convenient, but then I think very, very importantly the dosing flexibility and ability to impact a larger group of patients and traditionally has been able to be carried out with just a nebulizer. So hopefully that handles your question there.

Very helpful. Thanks. Thanks for all thoughts here. So my next question is I think we definitely talk about this dedication potential and the IPR outcome and since the time kind of may just take a bit longer than the 30 months day for the IPR decision. Just to get your thoughts – current thoughts around if you will launch at risk if the 30 month day past, but without IPR decision.

Hey, Roger, this is Shawn. So just a little clarity there on your question. The IPR process is roughly 18 months, so that process should be well completed before the 30 month – before what a 30 month day timeframe would be completed. Sounded in your question like the timelines might have been moved backwards on that so I just want to round off that clarity.

Got it. Yes, that's helpful. Thank you. Yes, that's all from me. Thank you.

Yes, sure.

And your next question comes from the line of Serge Belanger from Needham & Company.

Hey, thanks. This is Tan on for Serge. I just have two questions. So the first one, I guess for LIQ861, what are kind of your next steps that's needed from the FDA? And I guess, how do you expect the COVID impact to, I guess alter the FDA’s activities for example, pre-approval inspections? I think some of the other companies that we've tracked said that the FDA are able to conduct the inspection virtually. Is that a possibility for you guys too?

Yes. So I'll handle the kind of the first set. So next steps for us really at this point are just really the continued active dialogue with FDA on the review, which is underway, it kind of goes hand in glove with the back part of your question. We are actively engaged in the review process and FDA is doing their part in that. So we know they're very active and it's essentially at this point handling any clarification types of questions that are underway there, which lends itself to the second part. Yes, the inspection piece is out there. We're very well prepared and look forward to that. It's not clear yet to us. We've received no guidance from FDA yet about the inspection process about whether that will be done virtually or in person. Obviously, they are under a lot of the same travel restrictions we're all under and they're looking for alternative ways to do that and they've given us no guidance on that. I will also just kind of highlight here. One of the unique things about our process here is we were – you may recall, we were also accepted into the emerging technologies program a couple of years back, which afforded us the chance to go to their facilities in DC, but also have them visit our facilities in Research Triangle Park here in North Carolina. So they've had an ability to be onsite with us, but whether they're going to need an onsite inspection or whether that's done virtually at this point is unknown. And we'll keep you guys abreast of that as we get clarification.

Got it. Thank you.

Sure.

And we have no further questions. I'll now turn the call back over to Neal Fowler for closing remarks.

Yes. I want to thank everyone for joining us on the call today and we appreciate all the questions as always. We appreciate everyone's continued interest in investment in Liquidia. And look forward to updating on our progress throughout the rest of the year. Again, thanks at the end of the day and have a great evening.

Thank you. And this does conclude today's conference call. You may now disconnect your lines.