Good morning, ladies and gentlemen. My name is Jane. And I will be your conference operator today. I would like to welcome everyone to the Liquidia Technologies Second Quarter 2019 Financial Results and Corporate Update Conference Call. At this time, all participants are in a listen-only mode.

Following the presentation, we will a question-and-answer session. Instructions will be provided at that time for you to queue up for questions. [Operator Instructions] I would now like to introduce your host for today's conference, Jason Adair, Vice President, Corporate Development & Strategy..

Thank you, and good morning. Welcome to Liquidia Technologies second quarter 2019 financial results and corporate update. Today's call will include forward-looking statements pursuant to the Private Securities Litigation Reform Act of 1995 based on current expectations.

Such statements represent management's judgment as of today and may involve significant risks and uncertainties that could cause actual results to differ materially from expected results.

Please refer to Liquidia's filings with the SEC which are available from the SEC at sec.gov or from Liquidia's Web site at www.liquidia.com, for information concerning risk factors that could cause such differences and otherwise affect the company. I would now like to turn the call over to Neal Fowler, CEO of Liquidia..

Good morning to everyone, and thank you for joining us. I am here with Rich Katz, our Chief Financial Officer. He joined us in May. Rich has already had an intermediate and positive impact on the company, and I am excited to have him join me today.

This morning I will summarize our recent accomplishments and provide an update on our two pipeline programs, LIQ861 and LIQ865. Rich will provide a summary of our financial results for the second quarter of 2019. And then, I will wrap up with an update on our upcoming key milestones. After our prepared remarks, we will open the call for your questions.

I will start with some recent important highlights. We shared additional data in May at the American Thoracic Society's international conference from the INSPIRE study on the positive impact of LIQ861 in patients with PAH. As shown in exploratory endpoints.

We continued treatment of the vast majority of INSPIRE being on the primary endpoint at month two. We strengthened our understanding of administration technique and admitted dose in connection with our continued PK work.

And lastly with an eye to the future, we have amended our agreement with GSK to provide Liquida with the ability to pursue additional inhaled products using our PRINT technology. With this highlights in mind, I would like to provide some additional details on our activity in the last quarter starting with LIQ861.

As a reminder, 861 is an inhaled dry powder formulation of treprostinil, a prostacyclin analog used to treat PAH by targeting the pulmonary arteries. It combines the demonstrated benefits of inhaled prostacyclin therapy with fewer systemic toxicities in oral or infused options.

We believe that 861 has the potential to maximize a therapeutic benefits of treprostinil by safely delivering higher doses directly into the lungs using a convenient palm sized disposable inhaler. Over the course of this year, we have shared host of exciting data on 861. And I would like to summarize where we are as we now prepare for NDA submission.

We have met the primary endpoint of our pivotal study demonstrating a favorable safety and tolerability profile of LIQ861. We have encouraging data on both physical and emotional benefits of 861 as shown in exploratory endpoints.

We continue to observe a high rate of continuation on therapy and are encouraged that over 90% of patients remained on 861 at the two month time point. And we have been very pleased by the positive reaction to data from the pivotal INSPIRE study which we shared at medical conferences and the enthusiasm from the PAH community at large.

As our confidence in the therapeutic benefits of 861 continues to increase so too does our understanding of the PK results we have observed. We reported in June the outcome of a Phase 1 in healthy volunteers. Post hoc analysis from this study showed that plasma levels of treprostinil were tightly co-related to the LIQ861 dose delivered.

However, we also observed some unexpected variation in plasma levels. After further clinical and non-clinical investigation, we believe the variation was related to an administration technique unique to the conduct of the study at the Phase 1 unit.

We plan to complete the PK work expeditiously and continue to target NDA submission by the end of the year. As to the GSK agreement, while the 861 NDA is clearly our top priority, we were excited to announce in June the amendment to our GSK agreement.

We now an opportunity to expand the Liquidia pipeline by leveraging the demonstrated benefits of inhaled PRINT particles. We have acquired rights to pursue PRINT programs based upon three specific molecules and a mechanism to acquire further molecules with GSK's approval.

Each of the new inhaled programs provides GSK with milestones in royalties beginning with the start of a Phase 3 trial as well as the right of first negotiation should Liquidia choose to seek partnership for that program. We are excited to have the opportunity to add inhale programs to our future pipeline.

And as it pertains to our pipeline, I am pleased to report at our 865 program is on track. We are targeting the start of Phase 2 studies in the first half of 2020. As a reminder, LIQ865 is a PRINT formulation of bupivacaine to local, postoperative pain for three to five days with a single administration.

The supporting toxicology studies are in progress and the organization is making the necessary preparation to have drug product ready for clinical studies. In summary, we have made meaningful progress across our clinical programs and are keenly focused on delivering on 2019 milestones.

I would now like to turn the call over to Rich to review our second quarter financial summary..

Thanks, Neal, and good morning everyone. Let me briefly summarize our results for the quarter. Revenues were $8.1 million for the second quarter of '19 and that compared with $1 million for the second quarter of '18.

This increase was due to the recognition of $8.1 billion of previously deferred as revenue as a result of our determination that the earnings process with respect to our GSK collaboration had been completed up on completion of the amendment that Neal referred.

Cost of sales were $0.8 million for the second quarter of '19 and that compared with $0.1 million for the second quarter of '18. Cost of sales simply represents the sub licensing fees that are paid to UNC when we recognize licensing revenue. And that was of course then in connection with the GSK agreement as well.

R&D expenses as expected were $10.7 million. That's up from $5.9 million in the prior year comparable period. The increase was largely driven of course by the ongoing clinical cost related to 861.

G&A $2.4 million for second quarter of 19 compared to $2 million for the second quarter of 18, expected increase is primarily due to employee related expenses including stock based comp and of course public company cost. So in total, net loss $5.9 million compared to $6.3 million for the second quarter of 18.

The slightly narrower loss was largely driven by the recognition of the %8.1 million of deferred revenue again related through the GSK collaboration and that was partially offset by the increase in the operating cost that are noted. Cash at the end of the quarter was %52.1 million. And at the end of the quarter was 18.6 million shares.

And now let's me turn it back to Neal..

Thanks, Rich. I'm proud that our team has continued to execute as planned against our goals for the year. The focus is very clear for the remainder of the year. We want to target submission of our NDA for 861 by the end of 2019. Release the additional longitudinal data from the INSPIRE trial during the fourth quarter of 2019.

And complete toxicology studies that support 865 and prepare for Phase II two trials. To recap where we are, but also where we're heading. We believe that 861 represents a transformative change in delivering a prostacyclin analog directly to the lung. The positive feedback from physicians has been consistent and frequent.

And through the study, we believe Liquidia has clearly helped raise awareness of an unmet need, which we will strive to be the first to meet. But we won't stop with one program. We intend to leverage our print technology to build a robust portfolio of innovative programs.

With 865 we're excited about the potential to improve the treatment of postoperative pain. And we have clear ideas for how to build new inhaled programs, leveraging the benefits of precise uniform print particles. We look forward to updating you on our progress in the coming months.

Our next investor presentation will be at the 2019 Wedbush PacGrow Healthcare Conference next week on August 13 in New York. We look forward to continuing to update you and want to say thanks for your interest and continued support. And I'll now turn the call over to the operator to take your questions..

[Operator Instructions] Your first question comes from Stacy Ku from Cowen and Company. Your line is now open..

Good morning. Thank you for taking my questions, and congratulations on the progress.

First, just remind us what is in the evolution of the PK human landscape? What do you think 861 will fall and will the initial target be conversions from [indiscernible]? And I have a follow-up?.

Sure, Stacey. Thanks. In short, I'll give you just a quick historical context. When we entered the interest in this program years ago, our initial thinking was simply the convenience of a dry powder inhaler, would trump a nebulize type of approach just simply out of convenience for the patient.

However, one of the things we wanted to see in the clinic was improved therapeutic profile. Thanks to our PRINT particle technology. And in fact, that's been the case. So we are very optimistic about the potential for 861. And that you have the convenience of the DPI over current nebulized therapies that are out there.

But as demonstrated in our Phase III study, one of the things that you may recall is that there was a lot more upfront use for patients that were previously naive to inhaled therapies, just because of simply being able to use a dry powder inhaler.

And we think that will expand if you want to think of the disease in an upstream fashion for where nebulized therapies are today, but also importantly, because we're able to dose treprostinil at higher levels.

Thanks to our particle technology that may potentially prolong the ability to stay on inhaled therapies and thus potentially delay the need for peripheral therapies downstream.

So we think in short this not only as a replacement for available inhaled therapies that are out there today, but for an expansion, or I call it a reengineering of the inhaled spaces we know it today in the treatment of BAH..

That's really helpful.

And if I may drill down into the details, could you offer any additional commentary on the PK sub study? Roughly how long does it take for the healthy volunteer PK study to read out? And are there any other remaining gating factors for NDA submission? With, for instance, with the FDA want to test the maximum tolerated dose of a six months? Thanks..

Sure. I'll be glad to address that. So the PK question first.

This has gone really kind of according to plan coming out of the last call that we had with everyone, we wanted to do both non-clinical and a clinical look, our assumption from the beginning had been that there was simply an administration technique issue at the site based on the positive results we've seen in the Phase III study, we needed to go in and take a look at that and prove that.

And in fact, we've done that -- our remaining step in that process us now is to go in and simply redo the actual PK work now itself. That will go quite quickly. We're able to get those data, still get our final study report in time to get our NDA and by the end of the year. So that is all according to plan.

As it pertains to your second question on the MTD, we're not required to find the MTD for our submission. We are very interested Three Time and trying to understand where that is and we will continue to study that. We have a patient -- we have a patient that has been at a 200-microgram dose for example, with our 861 product has continued to do well.

We will continue to follow these patients, as you know longitudinally through time. And as we continue to learn more about higher doses will certainly share that with the marketplace..

That's great. Thank you. Sure..

Sure..

Your next question comes from Liana Moussatos from Wedbush Securities. Your line is open..

Thank you for taking my question.

What additional 861 INSPIRE trial data are we going to see in Q4? And what's the runway for the cash?.

Hey, Liana. This is Neal. Maybe I'll take the first question and I'll let Rich handle the second. As it pertains a longitudinal data, it will be consistent with what we've turned out, for example, with the two months, two week and two months data that you've seen so far this year.

So we will continue even beyond the four-month mark Three Time to report both adverse event data, as well as our secondary endpoints, which include quality of life measurements, that consistent with what you saw earlier this year, as well as things like six-minute walk. So we want to follow those patients through the long-haul.

And we'll continue to report this data out as they become available..

And on your second question, cash runway. We have cash into the second quarter of next year of 2020. So we are obviously looking at a variety of means of continuing financing of the company well beyond that we're very excited about the program. We want to drive this forward as aggressively as we possibly can.

And so, we will look at all alternatives to fund the company appropriately..

Thank you for taking my question..

Sure..

Sure..

Your next question comes from the line of Serge Belanger from Needham. Your line is now open..

Hey, good morning, guys. This is Tan [Ph] on for Serge. I just had a couple. So with respect to LIQ861, I think you were planning a pre-NDA meeting with the FDA.

Has it completed? Has there been any dialogue there? And then with respect to the PK study, I think you mentioned about some potential differences in the administration technique of the patients. Do you think there's anything there that you can maybe mitigate the issue? And then lastly, in terms of your ex-U.S.

strategies, I think you mentioned in the past, you're looking for potential partner. Do you have any update there? And what are your next steps? Thank you..

Sure Tan. Thanks so much for your questions. I'll try to hit these in order here. Your first question about pre-NDA meeting, we will be scheduling that consistent with what we had mentioned earlier.

So typically, I don't want to put words in an FDA's mouth here, but typically we will ask for a meeting that will occur early part of the fourth quarter, which would then set us up for the NDA filing, which would be at the end of the year. So we don't have a specific date set yet on that which we wouldn't expect.

But that will be coming in the not too distant future.

As it pertains to the dosing, that -- the technique variability was really directed solely to the site, we've seen very -- we had very consistent feedback from both our clinical trial sites, as throughout the trial design, as well as we constantly are monitoring and checking for that, that the administration is going quite well in the trial site, I'm sorry, in the trial setting of a Phase III study.

But this Phase I work that we had done, the technique was, in essence, somewhat over controlled in that they followed a certain protocol that led to variability and we were able to quickly see where that occurred. It was a hunch from the beginning, we just needed to go back and show ourselves that which we did.

And now we want to just repeat that PK work. So we feel very confident about our ability to move forward on that.

And the last question, I'm sorry, was --?.

Ex-U.S. partners..

Oh, yes, ex-U.S. partners. Thanks. As it pertains to partnering -- as you would imagine, in the drug industry, when you get Phase III data, it incites a lot of interest from folks. So, we're taking a look at all alternatives, as Rich said, we want to be very smart about how we do that.

From the beginning, as you know, we're very intent on creating a commercial presence, and a fully integrated pharma company Tree Time.

So, with an exact structure of a partnership like that remains to be seen what it would finally look like, and ultimately, and I don't want to give any guidance, this is we're absolutely going to do a partnership, but we're entertaining discussions will continue to do that.

And all things are on the table for us as we assess the optimal way to go forward..

Great. Thank you for the color..

Sure..

Next question comes from the line of Chris Howerton from Jefferies. Your line is now open..

Great, good morning. Thanks for taking the questions.

I think for the most part, my questions have been asked, but I guess, perhaps just a clarification, Neal, on the -- when you say, we're just going to redo the PK? What does that mean? Are you're going to collect additional samples from healthy volunteers? Or it's just biochemical analysis of the samples you already have in hand?.

Yes, Chris. Sure. To clarify, that we will read do in healthy volunteers that work, it's actually very quick for us to do. What we're essentially just going to do is just double down on the technique changes that we -- that I've alluded to earlier.

And we will go back in on additional patients and be able to show that the blood levels in those particular healthy volunteers..

Okay, got it. So --.

Phase I work and it'll move very quickly..

Right. So essentially, you've identified the kind of problem with the conduct of that Phase I trial..

That's correct..

A remedy and plan to redo it, got it. Okay..

That's correct..

Okay. And then I don't know, if you're able to kind of give more details or more information around the potential strategy on other programs or maybe even just what features Liquidia might find attractive in additional pipeline programs, as we all expect success with the current ones..

Yes, so, a commentary there is PRINT. Again, a quick backdrop on PRINT, it offers immense landscape for us in terms of portfolio opportunities, we have not found any limitations to date with where PRINT can be used in terms of actives, which or route of delivery, which opens up the men's real-estate there for us.

That said, we want to stay very smart about we look at our pipeline, and we try to typically, as we've done in the past build off of expertise that we already have created Three Time. So that was what drove a lot of our discussion with GSK to do additional inhaled assets. Since we now have really good capabilities. On the inhaled space.

We have very specific ideas about where we would like to move in the inhaled space building off of our 861 capabilities and as well as the potential for very differentiated molecules there.

And also, again as demonstrated with our sustained release capabilities that we learned early on years ago in ophthalmology that then translated 865 will be smart to build off of that. And we can't do everything at once. So we got to be smart about how we build that out and in from the standpoint of focus and expenses.

But we want to continue to build out over the longer haul, a great arsenal of portfolio opportunities. And our goal here is to have a steady stream of pipeline candidates Three Time..

Great. Okay. That's really helpful.

And then maybe for Rich, in terms of thinking about cash resources and appropriate deployment of those to execute on your programs, what is like, maybe you could give us some strategies around like cost savings or additional capital resources that we can get past the stated runway, you said, which I think was either into the second quarter or through the second quarter of next year?.

Yes, we -- thanks, Chris. We did save into the second quarter. So, yes. Now, it's a great question. And we are actively looking at everything. In terms of cost, let me start with cost-cutting.

The program has certain fixed costs in our manufacturing infrastructure, has certain fixed costs, and we do want to continue to move forward with an 865 that we're very excited about as well. So the company is pretty lean as it is.

Of course, we always are looking for opportunities for cost savings, but that's not going to meaningfully change the runway. So we need to extend the runway, clearly through additional cash resources. And, Neal alluded to the interest that we've had in 861, which we've been very pleased by.

I think that as Neal mentioned, there are not a lot of programs at this stage of development, and with this commercial potential in front of them, and frankly, with this degree of confidence and a strong outcome. So, we've had lots of what I would call inbound interest.

And we are assessing that and having the appropriate discussions, I can't really comment further than that, except to say as Neal mentioned, I'll just reiterate it in anything that we might consider doing.

Our intent here is to become a commercial organization and to have a significant role in the marketing and sales of our Lead program, and really use that as a launchpad. As we think about bringing other programs through clinical development, and ultimately to the market as well. So our intent is to become a fully integrated pharmaceutical company.

That said, partnering opportunities are not the only way to fund a company as you know, there are other alternatives as well, other diluted and non-dilutive alternatives. And so we're assessing all of those, and we'll keep you updated as we progress with the discussions, but I know that was able to address your question..

Yes, now I really appreciate it. Thank you very much for taking the questions..

Absolutely..

Thanks, Chris..

[Operator Instructions].

It looks like we are done. So I guess that's it. Early on again, Neal here is just saying thanks to everyone for joining the call today. We as always appreciate everyone's interest and the investment in Liquidia and we look forward to being in touch and updating you on our continued progress. Thanks to everyone and have a great day..

That does conclude our today's conference call. You may now disconnect..