LQDA - Liquidia: United Manages A Temporary Win

Summary

• In their legal war, UTHR seems to have won a key battle as opposed to Liquidia.
• This has pushed back LQDA's launch by 18 months.
• I consider this a singular setback for the underdog.

Liquidia's ( NASDAQ: LQDA ) Tyvaso competitor Yutrepia won a tentative approval from the FDA on November 7, 2021, however, it could not (then) be marketed until the expiration of the regulatory stay on October 27, 2022. The stay is based on a then-ongoing patent litigation focusing on patents '066 and '793. For the backstory, see my LQDA coverage here , here and here . For a quick intro, here's how the company describes them:

The 066 and 901 are both methods of manufacturing the treprostinil API. The 793 patent is a method of treatment patents.

Meanwhile, in May, the FDA approved United Therapeutics ( UTHR ) and MannKind's ( MNKD ) Tyvaso DPI, an inhaled version of treprostinil developed using the latter's Technosphere technology. This was exactly what Martine Rothblatt was looking for, a way to scuttle Liquidia's efforts to bring its supposedly much better inhaled treprostinil to the market first. Like BofA's Greg Harrison says, Yutrepia has "a more functional, and low-resistance delivery device."

Last year, the PTAB (U.S. Patent Trial and Appeal Board) ruled in favor of Liquidia on the '901 patent. In July, the company got another win when the PTAB ruled that claims 1-8 of the '793 patent are unpatentable. A judge then suggested that '793 is invalid, according to Seeking Alpha , scoring more points for LQDA; however, the same judge also denied a stay request. In late August, the judge also ruled in favor of Liquidia for the '066 patent, where he found that, based on prior art from Moriarty et al, that the '066 patent is invalid in parts. Read this if you want the nitty-gritty of the thing. The judge then ruled that Yutrepia will directly infringe claims 1, 4, 6, 7, and 8 of the '793 patent. However, this does not discuss whether the '793 patent itself is invalid. As the judge said:

I find that the PTAB' s decision-which is not yet final - has no impact on my finding of induced infringement.

The judge then went on to discuss '793, basically siding with United on its invalidity question. The judge then concluded:

UTC failed to prove by a preponderance of the evidence that Liquidia will infringe claim 8 of the ' 066 patent. Liquidia proved by clear and convincing evidence that claims 1, 2, 3, 6, and 9 of the ' 066 patent are invalid. UTC proved by a preponderance of the evidence that Liquidia will induce infringement of claims 1, 4, 6, 7, and 8 of the ' 793 patent.

According to the BofA analyst cited earlier, IPR decisions "are rarely overturned" so '793 may still be a win for LQDA, although the appeals process will delay launch by one more year. As the company stated :

The PTAB's decision does not resolve the on-going Hatch-Waxman litigation and would not override an order of the District Court unless and until the decision of the PTAB is affirmed on appeal.

United's patent expires in 2027. LQDA got its first approval last year, so 6 years before that expiry. However, United has been able to push LQDA's launch efforts back to 2024. Until then, LQDA has nothing else to do but sharpen its legal teeth; meanwhile UTHR keeps adding new indications to Tyvaso, raking in millions of dollars in extra sales. I consider this a win for UTHR. Even if they lose the war, they have managed to win a key battle and postpone another critical battle. Martine Rothblatt has shown, once again, what a formidable adversary she is.

Financials

LQDA has a market cap of $391mn and a cash balance of $103mn as of the last quarter. They managed to raise $51mn in a dilutive offering in April. Research and development expenses were $5.2 million for the three months ended June 30, 2022, while general and administrative expenses were $6.9 million. When a company's G&A beats its R&D in expenses, you know they have nothing much to do until this legal thing is resolved. The FDA has anyway told them that LQDA "is not required to conduct additional studies when seeking the indication to treat pulmonary hypertension associated with interstitial lung disease (PH-ILD)."

Bottomline

I have followed the LQDA-UTHR story over the years, and while I have rooted for the underdog like everybody else, I doubt LQDA will find it easy beating UTHR at this waiting game. I do not see an upside for the stock in the near term.

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