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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 March 31, 2021

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 May 4, 2021, there were 51,972,961 shares of the registrant’s common stock outstanding.

LIQUIDIA CORPORATION

Page

PART I. FINANCIAL INFORMATION

Item 1.

Condensed Financial Statements (unaudited)

5

Condensed Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020

5

Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three Months Ended March 31, 2021 and 2020

6

Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2021 and 2020

7

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2021 and 2020

8

Notes to Condensed Consolidated Financial Statements

9

Item 2.

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

29

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

40

Item 4.

Controls and Procedures

40

PART II. OTHER INFORMATION

41

Item 1.

Legal Proceedings

41

Item 1A.

Risk Factors

42

Item 6.

Exhibits

79

Signatures

80

This quarterly report on Form 10-Q includes our trademarks, trade names and service marks, such as Liquidia, the Liquidia logo 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

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 the NDA for LIQ861 that was resubmitted to the U.S. Food and Drug Administration (“FDA”) in May 2021 following our receipt of a Complete Response Letter in November 2020 from the FDA and the potential for, and timing regarding, eventual FDA approval of and our ability to commercially launch, LIQ861, including the potential impact of regulatory review, approval, and exclusivity developments which may occur for competitors; (ii) the timeline or outcome related to our current patent litigation with United Therapeutics pending in the U.S. District Court for the District of Delaware or its inter partes review with the Patent Trial and Appeal Board of the U.S. Patent and Trademark Office; (iii) our ability to predict, foresee, and effectively address or mitigate future developments resulting from 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, liquidity and capital or financial markets; and (iv) our ability to continue operations as a going concern without obtaining additional funding;
our expectations regarding the size of the patient populations for, market acceptance and opportunity for those drug products and medical devices that we commercialize in collaboration with third parties, including Sandoz Inc.’s first-to-file fully substitutable generic treprostinil injection and the RG 3ml Medication Cartridge that we developed in collaboration with Chengdu Shifeng Medical Technologies LTD.;
successfully integrating our and Liquidia PAH, LLC’s (formerly known as RareGen, LLC) businesses, and avoiding problems which may result in our company not operating as effectively and efficiently as expected;
the possibility that the expected benefits of the recently completed merger transaction with RareGen, LLC (the “Merger Transaction”), will not be realized within the expected timeframe or at all, including without limitation, anticipated revenue, expenses, earnings and other financial results, and growth and expansion of our operations, and the anticipated tax treatment;
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;
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;
the effects on the businesses of the companies resulting from uncertainty surrounding the Merger Transaction, including with respect to customers, suppliers, licensees, collaborators, business partners, employees, other third parties or the diversion of management’s time and attention, that could affect our financial performance;

3

adverse outcomes of pending or threatened litigation or governmental investigations, if any, unrelated to the Merger Transaction;
the effects on the companies 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 disaster, global pandemics such as 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 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 outbreak on our company and our financial condition and results of operations. The forward-looking statements in this Annual Report 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. While we may elect to update these forward-looking statements at some point in the future, we have no current intention of doing so 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 towe,” “us,our,Liquidiaand theCompanyrefer 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.

4

PART I. FINANCIAL INFORMATION

Item 1. Condensed Financial Statements

Liquidia Corporation

Condensed Consolidated Balance Sheets (unaudited)

March 31, 

December 31, 

    

2021

    

2020

Assets

 

  

 

  

Current assets:

 

  

 

  

Cash and cash equivalents

$

53,637,155

$

65,316,481

Accounts receivable, net

627,600

Prepaid expenses and other current assets

 

814,046

 

752,447

Total current assets

 

55,078,801

 

66,068,928

Property, plant and equipment, net

 

6,296,068

 

6,805,570

Operating lease right-of-use assets, net

 

2,596,305

 

2,649,328

Indemnification asset, related party

2,985,461

1,387,275

Contract acquisition costs, net

12,034,436

12,792,491

Intangible asset, net

5,206,625

5,534,843

Goodwill

3,903,282

3,903,282

Other assets

 

350,896

 

390,043

Total assets

$

88,451,874

$

99,531,760

Liabilities and stockholders’ equity

 

  

 

  

Current liabilities:

 

  

 

  

Accounts payable

$

3,004,002

$

3,734,227

Accrued compensation

 

1,487,190

 

3,259,515

Other accrued expenses

 

2,367,197

 

1,386,880

Refund liability, net

1,768,864

Current portion of operating lease liabilities

 

691,103

 

664,670

Current portion of finance lease liabilities

 

333,365

 

923,218

Total current liabilities

 

7,882,857

 

11,737,374

Litigation finance payable

2,081,272

1,154,360

Long-term operating lease liabilities

 

4,821,539

 

5,006,301

Long-term finance lease liabilities

 

580,546

 

255,402

Long-term debt

 

10,176,481

 

10,292,485

Total liabilities

 

25,542,695

 

28,445,922

Commitments and contingencies

 

  

 

  

Stockholders’ equity:

 

  

 

  

Preferred stock — 10,000,000 shares authorized as of March 31, 2021 and December 31, 2020, 0 shares issued and outstanding as of March 31, 2021 and December 31, 2020

 

 

Common stock — $0.001 par value, 80,000,000 shares authorized as of March 31, 2021 and December 31, 2020, 43,346,924 and 43,336,277 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively

 

43,347

 

43,336

Additional paid-in capital

 

347,051,204

 

346,044,721

Accumulated deficit

 

(284,185,372)

 

(275,002,219)

Total stockholders’ equity

 

62,909,179

 

71,085,838

Total liabilities and stockholders’ equity

$

88,451,874

$

99,531,760

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

5

Liquidia Corporation

Condensed Consolidated Statements of Operations and Comprehensive Loss (unaudited)

Three Months Ended March 31, 

2021

2020

Revenue

    

$

3,083,631

    

$

Costs and expenses:

 

  

 

  

Cost of revenue

 

693,735

 

Research and development

 

6,053,726

 

10,822,924

General and administrative

 

5,337,253

 

3,823,197

Total costs and expenses

 

12,084,714

 

14,646,121

Loss from operations

 

(9,001,083)

 

(14,646,121)

Other income (expense):

 

  

 

  

Interest income

 

20,766

 

109,590

Interest expense

 

(202,836)

 

(254,948)

Total other income (expense), net

 

(182,070)

 

(145,358)

Net loss and comprehensive loss

$

(9,183,153)

$

(14,791,479)

Net loss per common share, basic and diluted

$

(0.21)

$

(0.52)

Weighted average common shares outstanding, basic and diluted

43,443,361

28,428,616

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

6

Liquidia Corporation

Condensed Consolidated Statements of Stockholders’ Equity (unaudited)

For the Three Months Ended March 31, 2021:

    

Common

Common

Additional

Total

Stock

Stock

Paid in

Accumulated

Stockholders’

    

Shares

    

Amount

    

Capital

    

Deficit

    

Equity

Balance as of December 31, 2020

 

43,336,277

$

43,336

$

346,044,721

$

(275,002,219)

$

71,085,838

Exercise of common stock options

 

281

 

 

494

 

 

494

Issuance of common stock under vesting of restricted stock units

 

10,366

 

11

 

(11)

 

 

Issuance of warrants

 

 

 

261,000

 

 

261,000

Stock-based compensation

 

 

 

745,000

 

 

745,000

Net loss

 

 

 

 

(9,183,153)

 

(9,183,153)

Balance as of March 31, 2021

 

43,346,924

$

43,347

$

347,051,204

$

(284,185,372)

$

62,909,179

For the Three Months Ended March 31, 2020:

 

  

 

  

 

  

 

  

 

  

 

Common

Common

Additional

Total

 

Stock

Stock

Paid in

Accumulated

Stockholders’

     

Shares

    

Amount

    

Capital

    

Deficit

    

Equity

Balance as of December 31, 2019

28,231,267

$

28,231

$

250,158,766

$

(215,239,450)

$

34,947,547

Exercise of common stock options

2,035

 

2

 

(2)

 

 

Stock-based compensation

 

 

878,963

 

 

878,963

Issuance of common stock under employee stock purchase plan

3,269

3

11,488

11,491

Issuance of common stock under stock incentive plan

702

1

(1)

Sale of common stock, net

131,425

131

725,267

725,398

Net loss

 

 

 

(14,791,479)

 

(14,791,479)

Balance as of March 31, 2020

28,368,698

$

28,368

$

251,774,481

$

(230,030,929)

$

21,771,920

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

7

Liquidia Corporation

Condensed Consolidated Statements of Cash Flows (unaudited)

Three Months Ended March 31, 

    

2021

    

2020

Operating activities

  

  

Net loss

$

(9,183,153)

$

(14,791,479)

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

 

  

 

  

Stock-based compensation

 

745,000

 

878,963

Depreciation and amortization

 

1,609,409

 

732,029

Non-cash lease expense

 

53,023

 

38,192

Non-cash interest expense

 

124,178

 

19,158

Changes in operating assets and liabilities:

 

  

 

  

Accounts receivable, net

 

(627,600)

 

Prepaid expenses and other current assets

 

(61,599)

 

(294,672)

Other non-current assets

 

39,147

 

(3,000)

Accounts payable

 

(2,328,411)

 

2,205,615

Accrued compensation

 

(1,772,325)

 

(1,736,417)

Other accrued expenses

943,804

(1,351,560)

Refund liability

(1,768,864)

Operating lease liabilities

 

(158,329)

 

(134,945)

Net cash used in operating activities

 

(12,385,720)

 

(14,438,116)

Investing activities

 

  

 

  

Purchases of property, plant and equipment

 

(52,419)

 

(182,216)

Net cash used in investing activities

 

(52,419)

 

(182,216)

Financing activities

 

  

 

  

Principal payments on finance leases

 

(225,922)

 

(304,285)

Principal payments on long-term debt

 

(10,352,940)

 

(1,411,766)

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

 

10,410,269

 

Receipts from litigation financing

926,912

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

 

 

725,398

Payments for offering costs

 

 

(68,965)

Proceeds from issuance of common stock under stock incentive plans

 

494

 

11,491

Net cash provided by (used in) financing activities

 

758,813

 

(1,048,127)

Net decrease in cash and cash equivalents

 

(11,679,326)

 

(15,668,459)

Cash and cash equivalents, beginning of period

 

65,316,481

 

55,796,378

Cash and cash equivalents, end of period

$

53,637,155

$

40,127,919

Supplemental disclosure of cash flow information

 

  

 

  

Cash paid for interest

$

87,320

$

241,804

Cash paid for operating lease liabilities

$

300,424

$

291,743

Reduction of lease liability and right-of-use asset from lease modification

$

38,787

$

Non-cash increase in indemnification asset through accounts payable

$

1,598,186

$

Changes in purchases of property, plant and equipment in accounts payable and accrued expenses

$

$

104,167

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

8

Liquidia Corporation

Notes to Condensed Consolidated Financial Statements (unaudited)

1. Business

Liquidia Corporation (“Liquidia” or the “Company”) is a biopharmaceutical company focused on the development, manufacturing, and commercialization of products that address unmet patient needs, with current focus directed towards the treatment of pulmonary hypertension (“PH”). Liquidia Corporation operates through its wholly owned operating subsidiaries, Liquidia Technologies, Inc. (“Liquidia Technologies”) and Liquidia PAH, LLC (“Liquidia PAH”), formerly known as RareGen, LLC (“RareGen”).

The Company generates 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 the first-to-file fully 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. The Company employs 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, the Company believes that its commercial presence in the field will enable an efficient base to expand from for the launch of LIQ861 upon approval, leveraging existing relationships and further validating its reputation as a company committed to supporting PAH patients.

The Company conducts research, development and manufacturing of novel products by applying its 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. The Company is currently developing one product candidate for which it holds worldwide commercial rights: LIQ861 to treat PAH.

LIQ861 is an inhaled dry powder formulation of treprostinil designed to improve the therapeutic profile of treprostinil by enhancing deep lung delivery and achieving higher dose levels than current inhaled therapies. The Company submitted the New Drug Application (“NDA”) for LIQ861 in January 2020. In November 2020, the Company received a Complete Response Letter (“CRL”) issued by the Food and Drug Administration (“FDA”) with respect to the NDA for LIQ861. In May 2021, the Company resubmitted the NDA for LIQ861 in response to the CRL.

The Company is 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 key personnel, protection of proprietary technology, compliance with government regulations, the impact of the COVID-19 coronavirus, and the ability to secure additional capital to fund operations. The Company expects to incur significant expenses and operating losses for the foreseeable future as it seeks regulatory approval and pursues commercialization of any approved product candidates. In addition, if the Company obtains marketing approval for any of its product candidates, it would incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution. These efforts require significant amounts of additional capital, adequate personnel and infrastructure, and extensive compliance-reporting capabilities. Even if the Company's development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales. The Company may need to seek additional funding through public or private financings, debt financing or collaboration. If the Company determines it requires but is unable to obtain funding, the Company could be required to delay, reduce, or eliminate research and development programs, product portfolio expansion, or future commercialization efforts, which could adversely affect its business prospects.

In accordance with Accounting Standards Update (“ASU”) 2014-15, Disclosure of Uncertainties about an Entitys Ability to Continue as a Going Concern (Subtopic 205-40), the Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the condensed consolidated financial statements are issued. The Company has financed its growth and operations through a combination of funds generated from revenues, the issuance of

9

convertible preferred stock and common stock, finance leases, bank borrowings, bank borrowings with warrants and the issuance of convertible notes and warrants. Since inception, the Company has incurred recurring losses, including net loss of $9.2 million for the three months ended March 31, 2021 and the Company had an accumulated deficit of $284.2 million as of March 31, 2021. The Company expects to continue to generate operating losses for the foreseeable future. As of the issuance date of the condensed consolidated financial statements for the three months ended March 31, 2021, the Company expects that its cash and cash equivalents will be sufficient to fund its operating expenses and capital expenditure requirements for at least 12 months from the issuance date of these unaudited interim condensed consolidated financial statements. The accompanying unaudited interim condensed consolidated financial statements have been prepared on the basis of continuity of operations, realization of assets, and the satisfaction of liabilities and commitments in the ordinary course of business.

Recent Developments and Subsequent Events

Issuance of Common Stock in Private Placement

On April 12, 2021, the Company entered into a Common Stock Purchase Agreement (the “Purchase Agreement”) with a fund and account managed by Caligan Partners LP and certain other accredited investors for the sale by the Company in a private placement (the “Private Placement”) of an aggregate of 8,626,037 shares of the Company’s Common Stock at a purchase price of $2.52 per share.

The Private Placement closed on April 13, 2021 and the Company received gross proceeds of approximately $21.7 million. The Company intends to use the proceeds from the Private Placement to strengthen its commercial capability for the introduction of LIQ861 and the subcutaneous administration of Treprostinil Injection, for growth initiatives, and for general corporate purposes.

510(k) Clearance of RG 3ml Medication Cartridge

On March 26, 2021, the FDA granted clearance for the 510(k) application submitted by Liquidia PAH’s manufacturing partner, Chengdu Shifeng Medical Technologies LTD (“Chengdu”) for the RG 3ml Medication Cartridge (the “RG Cartridge”) which is indicated for use with the CADD-MS 3 pump. The CADD-MS 3 pump has been used for the subcutaneous administration of Remodulin® for more than 10 years and is manufactured by Smiths Medical.

In connection with the clearance of the RG Cartridge, Liquidia PAH entered into a Distributor Agreement (the “Distributor Agreement”) with Future Diagnostics, LLC (“Future Diagnostics”) effective as of April 1, 2021 related to the sale and distribution of the RG Cartridge. Under the terms of the Distributor Agreement, Future Diagnostics will have the non-exclusive right to purchase RG Cartridges from Chengdu and sell RG Cartridges to certain customers identified by Liquidia PAH. Under the terms of the Distributor Agreement, Future Diagnostics will pay to Liquidia PAH a commission on all sales of the RG Cartridge.

Termination of Development of LIQ865

In April 2021, the Company decided to terminate the development of LIQ865, a sustained-release formulation of bupivacaine targeting the treatment of local, post-operative pain. The Company has chosen to focus internal resources on maximizing the value of its PAH assets and to build a pipeline more synergistic with its expertise in cardio-pulmonary and rare diseases. In the third quarter 2020, the Company initiated partnering conversations with multiple parties experienced in treating pain and/or commercializing hospital-based products. At this time, the Company has not identified any party that is willing to collaborate on additional development of LIQ865. As a result, the Company has formally concluded the development program.

10

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

Basis of Presentation

The unaudited interim condensed consolidated financial statements as of March 31, 2021 and for the three months ended March 31, 2021 and 2020 have been prepared by the Company 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 the Company’s audited consolidated financial statements but does not include all disclosures required by GAAP. Operating results for the three months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2021. 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. The Company’s 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 the Company’s audited consolidated financial statements for the year ended December 31, 2020, which are included in the Company’s 2020 Annual Report on Form 10-K.

There have been no material changes to the Company’s significant accounting policies during the three months ended March 31, 2021 compared with the significant accounting policies disclosed in Note 2 of the consolidated financial statements for the years ended December 31, 2020 and 2019, which are included in the Company’s 2020 Annual Report on Form 10-K.

Consolidation

The accompanying condensed consolidated financial statements include the Company’s wholly owned subsidiaries, Liquidia Technologies and Liquidia PAH. All intercompany accounts and transactions have been eliminated.

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 reasonable under the circumstances. The Company evaluates its estimates on an ongoing basis and makes changes to the estimates and related disclosures as experience develops or new information becomes known. Actual results will most likely differ from those estimates.

Revision of Previously Issued Financial Statements

During the three months ended June 30, 2020, the Company identified an error in the matter in which it calculated diluted weighted common shares outstanding and diluted net loss per common share. While the Company has included common stock warrants whose exercise price is de minimis in the calculation of basic weighted average common shares outstanding and basic net loss per common share, these warrants were inappropriately excluded from the calculation of diluted weighted average common shares outstanding and diluted net loss per common share, which resulted in an error in diluted weighted average common shares outstanding for the three month period ended March 31, 2020. The Company has evaluated this error and determined that this presentation error was not material to any prior annual or

11

interim periods. However, the Company is revising the previously presented March 31, 2020 diluted weighted common shares outstanding as follows:

Three Months Ended

March 31, 2020

    

As Presented

    

As Revised

Diluted weighted average shares outstanding

 

28,322,342

 

28,428,616

Summary of Significant Accounting Policies

Cash and Cash Equivalents

The Company considers all highly liquid investments with a maturity of three months or less at the date of purchase to be cash equivalents. Cash and cash equivalents as of March 31, 2021 were $53.6 million and included cash investments in money market funds of $42.7 million. Cash as of December 31, 2020 was $65.3 million and included no cash equivalents.

Accounts Receivable

Accounts receivable are stated at net realizable value including an allowance for doubtful accounts as of each balance sheet date, if applicable. As of March 31, 2021 and December 31, 2020, the Company has not recorded an allowance for doubtful accounts.

Business Combination

In a business combination, the acquisition method of accounting requires that the assets acquired and liabilities assumed be recorded as of the date of the acquisition at their respective fair values with limited exceptions. Assets acquired and liabilities assumed in a business combination that arise from contingencies are generally recognized at fair value. If fair value cannot be determined, the asset or liability is recognized if probable and reasonably estimable; if these criteria are not met, no asset or liability is recognized. Transaction costs and costs to restructure the acquired company are expensed as incurred. The operating results of the acquired business are reflected in the Company’s consolidated financial statements after the date of the acquisition.

Long-Lived Assets

The Company reviews 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. The Company also reviews for impairment when conditions exist that indicate the carrying amount of the assets may not be fully recoverable. In those circumstances, the Company performs undiscounted operating cash flow analyses to determine if an impairment exists. When testing for asset impairment, the Company groups 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

The Company acquired goodwill on its condensed consolidated balance sheet during the fourth quarter of 2020 from the Merger Transaction. The Company assesses 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. The Company has one reporting unit. The Company has 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.

12

Per ASU 2017-04 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. To date, no such impairments have occurred.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash and cash equivalents. The Company is exposed to credit risk, subject to federal deposit insurance, in the event of default by the financial institutions holding its cash and cash equivalents to the extent of amounts recorded on the condensed consolidated balance sheet. 81.5% of the Company’s cash and cash equivalents are held with Silicon Valley Bank (“SVB”).

As of and for the three months ended March 31, 2021, one customer accounted for all of the Company's accounts receivable and revenue.

Revenue Recognition

The Company recognizes revenue in accordance with Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (Topic 606). The core principle of Topic 606 is that a company should recognize revenue to depict the transfer of promised goods or services to 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, the Company assesses the promised goods or services in the contract and identifies 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. The Company evaluates 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. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a service to a customer. The amount of revenue

13

recognized reflects estimates for refunds and returns, which are presented as a reduction of Accounts receivable where the right of setoff exists.

Stock-Based Compensation

The Company estimates the grant date fair value of its stock-based awards and amortizes this fair value to compensation expense on a straight-line basis over the requisite service period, which is generally the vesting period of the respective award (see Note 5). The grant date fair value of stock options is determined using the Black-Scholes option-pricing model.

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 the weighted average shares outstanding for the dilutive effect of common stock equivalents outstanding for the period, determined using the treasury-stock method. For purposes of the diluted net loss per share calculation, stock options, restricted stock units and the SVB Warrant (see Note 11) are considered to be common stock equivalents but are excluded from the calculation of diluted net loss per share because their effect would be anti-dilutive. Due to their anti-dilutive effect, the calculation of diluted net loss per share for the three months ended March 31, 2021 and 2020 does not include the following common stock equivalent shares:

Three Months Ended

March 31, 

2021

2020

Stock Options

    

4,776,022

    

2,119,523

Restricted Stock Units

 

313,099

 

48,759

SVB Warrant

36,667

Total

 

5,125,788

 

2,168,282

For the three months ended March 31, 2021 and 2020, certain common stock warrants are included in the calculation of basic and diluted net loss per share since their exercise price is de minimis.

Recent Accounting Pronouncements

In March 2020, the Financial Accounting Standards Board ("FASB") issued guidance that provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by the discontinuation of the London Interbank Offered Rate (“LIBOR”) or by another reference rate expected to be discontinued. The Company adopted this guidance during the first quarter of 2021 and it did not have a material impact on its consolidated financial position, results of operations or cash flows.

In August 2020, the FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.  This guidance simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity’s own equity.  Key provisions of the guidance include reducing the number of accounting models, simplifying the earnings per share calculations and expanding the disclosures related to convertible instruments.  The guidance is effective for fiscal years, and interim periods within these fiscal years, beginning after December 15, 2021.  The Company is in the process of evaluating the impact of this guidance on its consolidated financial statements and related disclosures.

14

Fair Value of Measurements

The Company’s valuation of financial instruments is based on a three-tiered approach, which requires that fair value measurements be classified and disclosed in one of three tiers. 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 — Other than quoted prices included in Level 1 inputs 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 tables present the placement in the fair value hierarchy of financial liabilities measured at fair value as of March 31, 2021 and December 31, 2020:

    

Quoted

    

Significant

    

    

Prices in

Other

Significant

Active

Observable

Unobservable

Markets

Inputs

Inputs

Carrying

March 31, 2021

(Level 1)

(Level 2)

(Level 3)

Value

Assets

Money market mutual funds

$

42,726,954

$

$

$

42,726,954

Liabilities

Silicon Valley Bank term loan

$

$

10,072,320

$

$

10,176,481

    

Quoted

    

Significant

    

    

Prices in

Other

Significant

Active

Observable

Unobservable

Markets

Inputs

Inputs

Carrying

December 31, 2020

(Level 1)

(Level 2)

(Level 3)

Value

Liabilities

Pacific Western Bank term loan

$

$

9,842,069

$

$

10,292,485

Money market mutual funds are included in cash and cash equivalents on the Company's condensed consolidated balance sheets. They are valued using quoted market prices and therefore are classified within Level 1 of the fair value hierarchy.

The carrying amounts reflected in the Company's condensed consolidated balance sheets for cash and cash equivalents, 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 fair value of debt is measured in accordance with ASU 2016-01, Financial Instruments–Overall: Recognition and Measurement of Financial Assets and Financial Liabilities. The fair value is determined based on the exit price notion using credit spreads and an illiquidity premium for each loan. The credit spread is determined by the credit risk rating, loan rate index, and maturity date. The illiquidity premium is based on the loan’s credit risk rating.

3. Acquisition of RareGen LLC (now Liquidia PAH, LLC)

On November 18, 2020 (the “Closing Date”), the Company completed the previously announced acquisition contemplated by the 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”), by and among Liquidia

15

Technologies, the Company, RareGen, Gemini Merger Sub I, Inc., a Delaware corporation (“Liquidia Merger Sub”), Gemini Merger Sub II, LLC, a Delaware limited liability company (“RareGen Merger Sub”), and PBM RG Holdings, LLC, a Delaware limited liability company (“PBM”). Pursuant to the Merger Agreement, Liquidia Merger Sub, a former wholly owned subsidiary of the Company, merged with and into Liquidia Technologies (the “Liquidia Technologies Merger”), and RareGen Merger Sub, a former wholly owned subsidiary of the Company, merged with and into RareGen (the “RareGen Merger” and, together with the Liquidia Technologies Merger, the “Merger Transaction”). Upon consummation of the Merger Transaction, the separate corporate existences of Liquidia Merger Sub and RareGen Merger Sub ceased and Liquidia Technologies and RareGen (now Liquidia PAH) continue as wholly owned subsidiaries of Liquidia Corporation.

On the Closing Date, an aggregate of 5,550,000 shares of common stock, $0.001 par value per share (“Liquidia Corporation Common Stock”), were issued to RareGen members in exchange for 10,000 RareGen common units, representing all of the issued and outstanding RareGen equity. Additionally, on the Closing Date, an aggregate of 616,666 shares of Liquidia Corporation Common Stock were withheld from RareGen members to secure the indemnification obligations of RareGen members. Additionally, RareGen members received a pro rata portion of the RareGen cash at closing in excess of $1 million. RareGen members are also entitled to receive a pro rata portion of up to an additional 2,708,333 shares of Liquidia Corporation Common Stock in the aggregate in 2022, based on the amount of 2021 net sales of the generic treprostinil product (“Net Sales Earnout Shares”) owned by Sandoz, which RareGen markets pursuant to the Promotion Agreement. The fair value of the purchase consideration or the purchase price was approximately $20.8 million.

Reasons for the Acquisition and Merger

The Company acquired Liquidia PAH to improve financial strength and operational efficiencies including the generation of cash flow through sales of a generic version of Remodulin, which is a parenteral formulation of treprostinil, for the treatment of PAH. Strategically, the Company believes that its commercial presence in the field will enable an efficient launch of LIQ861 upon approval, leveraging existing relationships and further validating its reputation as a company committed to supporting PAH patients.

Merger Consideration

The fair value of the purchase consideration or the purchase price, was approximately $20.8 million. The purchase consideration consisted of the 6,166,666 shares of Liquidia Corporation Common Stock at a per share price of $3.38, which represented the closing price of Liquidia Technologies Common Stock on the Closing Date. 5,550,000 of the shares were issued as of December 31, 2020 and the remaining 616,666 shares were withheld from RareGen members to secure their indemnification obligations pursuant to the Merger Agreement.

The total purchase price and allocated purchase price is summarized as follows:

Number of common shares to be issued to RareGen’s members

    

6,166,666

Multiplied by the fair value per share of Liquidia Technologies common stock

$

3.38

Total estimated purchase price

$

20,843,331

Accounting for the Acquisition

The acquisition of Liquidia PAH was accounted for as a business combination and reflects the application of acquisition accounting in accordance with Accounting Standards Codification (ASC) 805, Business Combinations. The acquired Liquidia PAH assets, including identifiable intangible assets and liabilities assumed, have been recorded at their estimated fair values with the excess purchase price assigned to goodwill. A preliminary purchase price allocation has been performed and the recorded amounts for intangible assets, other assets, indemnification asset, goodwill, litigation finance payable, deferred tax liability and other liabilities are subject to change pending finalization of valuation efforts and review of tax matters. The amounts recognized will be finalized as the information necessary to complete the analysis is obtained, but no later than one year after the Closing Date.

16

Purchase Price Allocation

The preliminary purchase price allocation resulted in the following amounts being allocated to the assets acquired and liabilities assumed as of the Closing Date of November 18, 2020 based on their respective preliminary fair values summarized below:

Cash

    

$

1,000,000

Property and equipment

 

79,330

Prepaid and other current assets

 

30,190

Intangible asset

 

5,620,000

Contract acquisition costs

 

12,980,000

Indemnification asset, related party

 

1,065,538

Goodwill

 

3,903,282

Less other current liabilities

 

(492,499)

Less refund liability

 

(2,696,000)

Less litigation finance payable, long-term

 

(646,510)

Total estimated purchase price

$

20,843,331

Contract Acquisition Costs, Intangible Asset and Goodwill Acquired

Prior to the Merger Transaction, the Company did not have contract acquisition costs, intangible assets or goodwill on its balance sheet. Contract acquisition costs and Intangible asset of $12,980,000 and $5,620,000, respectively, were acquired in the Merger Transaction relating to and consisting of the Promotion Agreement. The Company is amortizing the value of the Promotion Agreement 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 the date of the Merger Transaction through May 2027 (see Note 2 for Revenue Recognition accounting policy). Amortization of contract acquisition costs is recorded as a reduction of revenue and amortization of the intangible asset is recorded as cost of revenue. During the three months ended March 31, 2021, the Company recorded total amortization of $758,056 from the contract acquisition costs as a reduction in revenue. Net contract acquisition costs totaled $12,034,436 and $12,792,491 as of March 31, 2021 and December 31, 2020. During the three months ended March 31, 2021, the Company recorded total amortization of $328,218 from the intangible asset as cost of revenue.

The Company acquired goodwill in the Merger Transaction of $3,903,282 which primarily represents the Liquidia PAH assembled workforce and the residual value of the purchase consideration and assumed liabilities that exceeded the assets acquired (see Note 2 for Goodwill accounting policy). None of the goodwill recognized is expected to be deductible for income tax purposes.

Refund Liability

In accordance with the Promotion Agreement, Liquidia PAH receives consideration from Sandoz in the form of a share of Net Profits for the promotional activities it performs. The share of Net Profits received is subject to adjustments from Sandoz for items such as distributor chargebacks, rebates, inventory returns, inventory write-offs and other adjustments (the “Net Profits Adjustment”). As of the date of the Merger Transaction, the Company identified approximately $2,696,000 of Net Profits Adjustment that are expected to be refunded to Sandoz during 2021 for items that had been incurred prior to the Merger Transaction. The Company has recorded a refund liability as part of the assumed liabilities from the Merger Transaction. The Company expects to refund this amount to Sandoz through a reduction of the cash received from future Net Profits generated under the Promotion Agreement. The Company expects to generate sufficient Net Profits during 2021 to satisfy the refund liability. As of March 31, 2021, $826,468 of refund liability is offset against Accounts receivable from Sandoz related to net service revenues recognized during the first quarter of 2021. As of December 31, 2020 $927,136 of accounts receivable from Sandoz related to net service revenues recognized during the fourth quarter of 2020 are offset against the refund liability.

17

Indemnification Asset with Related Party and Litigation Finance Payable

Prior to the Closing Date of the Merger Transaction, 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 in November 2020, were pursuing litigation against Smiths. 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.

In connection with the Merger Transaction, 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 10% of Liquidia Corporation Common Stock as of April 15, 2021) who is also a member of the Company’s Board of Directors.

Prior to the Merger Transaction, Liquidia PAH was actively managing the litigation, and had sole decision-making authority over the litigation. Under the terms of the Indemnification Agreement, PBM now controls the litigation, with Liquidia PAH’s primarily 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 United Therapeutics and Smiths Medical ASC 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.

As of the Closing Date of the Merger Transaction, Liquidia PAH recorded an Indemnification Asset of $1,065,538. The Indemnification Asset is increased as the Company records third party legal and litigation expenses related to the United Therapeutics and Smiths Medical ASC litigation.

As of March 31, 2021 and December 31, 2020, the Indemnification Asset and Litigation Finance Payable were classified as long-term assets and liabilities, respectively as it is considered unlikely that the litigation would conclude prior to March 31, 2022.

4. Stockholders’ Equity Authorized Capital

As of March 31, 2021, the authorized capital of the Company consists of 90,000,000 shares of capital stock, $0.001 par value per share, of which 80,000,000 shares are designated as common stock and 10,000,000 shares are designated as preferred stock.

Common Stock

Upon any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company, the holders of the common stock shall be entitled to receive that portion of the remaining funds to be distributed to the stockholders, subject to the liquidation preferences of any outstanding preferred stock, if any. Such funds shall be paid to the holders of common stock on the basis of the number of shares so held by each of them.

18

Issuance of Common Stock on April 13, 2021 from a Private Placement

On April 12, 2021, the Company entered into a Common Stock Purchase Agreement (the “Purchase Agreement”) with a fund and account managed by Caligan Partners LP and certain other accredited investors for the sale by the Company in a private placement (the “Private Placement”) of an aggregate of 8,626,037 shares of the Company’s Common Stock at a purchase price of $2.52 per share.

The Private Placement closed on April 13, 2021 and the Company received gross proceeds of approximately $21.7 million. The Company intends to use the proceeds from the Private Placement to strengthen its commercial capability for the introduction of LIQ861 and the subcutaneous administration of Treprostinil Injection, for growth initiatives, and for general corporate purposes.

Issuance of Common Stock on July 2, 2020 from an Underwritten Public Offering

On June 29, 2020, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with Jefferies LLC, as representative of the several underwriters named therein (collectively, the “Underwriters”), pursuant to which 9,375,000 shares of the Company’s Common Stock were sold in an underwritten registered public offering at an offering price of $8.00 per Share (the “Offering”).

The Offering closed on July 2, 2020, and the Company received net proceeds of approximately $70.3 million from the sale of the Shares, after deducting the underwriting discounts and commissions and other offering expenses. The Company intends to use the net proceeds from this Offering for ongoing commercial development of LIQ861 and for general corporate purposes. The Company’s management will retain broad discretion over the allocation of the net proceeds.

Issuance of Common Stock from the ATM Agreement Commencing in August 2019

The Company entered into a sales agreement (the “ATM Agreement”) with Jefferies LLC (“Jefferies”) to issue and sell shares of the Company’s common stock, having an aggregate offering price of up to $40.0 million, from time to time during the term of the ATM Agreement, through an “at-the-market” equity offering program at the Company’s sole discretion, under which Jefferies will act as the Company’s agent and/or principal. The Company pays Jefferies a commission equal to 3.0% of the gross proceeds of any common stock sold through Jefferies under the ATM Agreement. During the three months ended March 31, 2020, Liquidia Technologies sold 131,425 shares of common stock for net proceeds of $0.7 million after deducting the underwriting discounts and other offering expenses under the ATM Agreement.

Warrants

During the three months ended March 31, 2021 and 2020, no warrants to purchase shares of common stock were exercised.

As of March 31, 2021 outstanding warrants consisted of the following:

Number of

   

warrants

   

Exercise Price

   

Expiration Date

SVB Warrant

100,000

$

3.05

February 26, 2031

Other warrants

106,274

$

0.02

December 31, 2026

As of December 31, 2020 outstanding warrants consisted of the following:

Number of

   

warrants

   

Exercise Price

   

Expiration Date

Other warrants

106,274

$

0.02

December 31, 2026

19

5. Stock-Based Compensation

The Company’s 2020 Long-Term Incentive Plan (the “2020 Plan”) was approved by stockholders in November 2020. In addition to stock options, the 2020 Plan provides for the granting of stock appreciation rights, stock awards, stock units, and other stock-based awards. The 2020 Plan provides for accelerated vesting under certain change of control transactions. A total of 1,700,000 shares of the Company’s common stock was initially authorized and reserved for issuance under the 2020 Plan. This reserve will automatically increase each subsequent anniversary of January 1 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, 2021, the number of shares of common stock available for issuance under the 2020 Plan automatically increased by 1,733,432 shares to 2,955,432 shares from 1,222,000 pursuant to the Evergreen Provision. As of March 31, 2021, the Company had 1,582,139 shares available to issue under the 2020 Plan.

The 2020 Plan replaced the Company’s 2018 Long-Term Incentive Plan (the “2018 Plan”) and as a result the 2018 Plan was discontinued. The 2018 Plan had replaced the 2016 Equity Incentive Plan (the “2016 Plan”) and 2004 Stock Option Plan (the “2004 Plan”) as the Company’s primary long-term incentive program. The 2018, 2016 and 2004 Plans have been discontinued but the outstanding awards under the 2018, 2016 and 2004 Plans will continue to remain in effect in accordance with their terms. Shares that are returned under the 2018, 2016 and 2004 Plans upon cancellation, termination or otherwise of awards outstanding under the 2018, 2016 and 2004 Plans will not be available for grant under the 2020 Plan. As of March 31, 2021, the Company had reserved for issuance 989,923 shares of common stock under the 2018 Plan, 351,552 shares of common stock under the 2016 Plan and 209,397 shares of common stock under the 2004 Plan, representing the remaining outstanding options granted under the 2018, 2016 and 2004 Plans.

During December 2020, the Company issued a stock option grant to its new chief executive officer (the “CEO”) to purchase up to 2,000,000 shares of the Company’s common stock (the “CEO Option”) at the exercise price on the grant date of $3.00 per share. The CEO Option was issued outside of the 2020 Plan and is subject to the following vesting schedule; 25% of the CEO Option will become vested and exercisable on the first anniversary of December 14, 2020 and the balance will become vested and exercisable in equal monthly installments over the following thirty-six months, subject to the CEO’s continuous employment with the Company. However, the CEO Option is subject to the following accelerated vesting: (i) if the Company receives tentative approval by the FDA of the Company’s New Drug Application for LIQ861 prior to June 30, 2022, and the CEO is actively employed by the Company on such date, then 25% of the then-unvested portion of the CEO Option shall become vested and exercisable as of the date of the FDA’s approval; and (ii) if the Company achieves commercial availability of the subcutaneous Treprostinil product with cartridge supplies sufficient to support the market for one year by December 31, 2021, and the CEO is actively employed by the Company on such date, then 25% of the then-unvested portion of the CEO Option shall become vested and exercisable as of the date the Company can document by competent proof to the Board of the achievement of such milestone. In addition, the CEO Option will become 100% vested upon certain change of control transactions. As of March 31, 2021, these milestones had not been achieved.

Stock-Based Compensation Valuation and Expense

The Company accounts for its employee stock-based compensation plans using the fair value method. The fair value method requires the Company to estimate the grant-date fair value of its 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 the Company’s 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.

20

The Company recorded the following stock-based compensation expense:

Three Months Ended

March 31, 

By Expense Category:

    

2021

    

2020

Research and development

$

251,000

$

275,141

General and administrative

 

494,000

 

603,822

Total stock-based compensation expense

$

745,000

$

878,963

Three Months Ended

March 31, 

By Type of Award:

    

2021

    

2020

Stock options

$

762,000

$

854,770

Restricted stock units

 

(17,000)

 

24,193

Total stock-based compensation expense

$

745,000

$

878,963

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 March 31, 2021

Weighted

Average

Remaining

Recognition

    

Unamortized

    

Period

Expense

(Years)

Stock options

$

9,859,000

 

3.4

Restricted stock units

$

865,000

1.8

GRAPHIC GRAPHIC Stock Options

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

Three Months Ended

March 31, 

    

2021

    

2020

Expected dividend yield

Risk-free interest rate

 

0.62% - 1.67%

 

0.90% - 1.60%

Expected volatility

 

93% - 94%

 

87% - 90%

Expected life (years)

 

5.2 - 6.1

 

6.1

As a result of using these assumptions in the Black-Scholes option-pricing model, the weighted average fair value for options granted during the three months ended March 31, 2021 and 2020 was $2.09 and $2.38 per share, respectively.

The following describes each of these assumptions and the Company’s methodology for determining each assumption:

Expected Dividend Yield

The dividend yield percentage is zero because the Company neither currently pays dividends nor intends to do so during the expected option term.

Risk-Free Interest Rate

The risk-free interest rate is based on the U.S. Treasury yield curve approximating the term of the expected life of the award in effect on the date of grant.

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Expected Volatility

Expected stock price volatility is based on a weighted average of several peer public companies and the historical volatility of the Company’s common stock during the period for which it has traded since the initial public offering. For purposes of identifying peer companies, the Company considered characteristics such as industry, length of trading history and similar vesting terms.

Expected Life

The expected life represents the period the awards are expected to be outstanding. The Company’s historical share option exercise experience does not provide a reasonable basis upon which to estimate an expected term because of a lack of sufficient data. Therefore, the Company estimates the expected term by using the simplified method.

The following table summarizes the Company’s stock option activity during the three months ended March 31, 2021:

    

    

    

Weighted

    

Weighted

Average

Average

Contractual

Aggregate

Number of

Exercise

Term

Intrinsic

Shares

Price

(in years)

Value

Outstanding as of December 31, 2020

 

4,692,071

$

5.51

 

  

 

  

Granted

 

1,162,918

$

2.80

 

  

 

  

Exercised

 

(623)

$

2.33

 

  

 

  

Cancelled

 

(811,578)

$

7.46

 

  

 

  

Outstanding as of March 31, 2021

 

5,042,788

$

4.57

 

8.4

$

98,081

Exercisable as of March 31, 2021

 

1,042,063

$

8.21

 

3.9

$

11,020

Vested and expected to vest as of March 31, 2021

 

4,998,291

$

4.55

 

8.4

$

98,081

The aggregate intrinsic value of stock options in the table above represents the difference between the $2.69 closing price of the Company’s common stock as of March 31, 2021 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 common stock of the Company at the end of a specified time period or upon the achievement of a specific milestone. RSUs can only be settled in shares of the Company’s common stock. During the three months ended March 31, 2021, the Board of Directors approved grants of an aggregate of 334,015 performance-based RSUs to employees. These performance RSUs vest upon the tentative approval by the FDA of the Company’s New Drug Application for LIQ861. The achievement of this performance milestone was not deemed probable as of March 31, 2021. During the three months ended March 31, 2020, the Board of Directors approved grants of an aggregate of 138,464 non-performance-based RSUs to employees. RSUs represent the right to receive shares of common stock of the Company at the end of a specified time period. The RSUs vest over a four-year period similar to stock options granted to employees.

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A summary of nonvested RSU awards outstanding as of March 31, 2021 and changes during the three months then ended is as follows:

    

    

    

Weighted

Average

Grant-Date

Number of

Fair Value

RSUs

(per RSU)

Nonvested as of December 31, 2020

 

88,131

$

4.68

Granted

 

334,015

 

2.97

Vested

 

(10,366)

 

3.31

Forfeited

 

(52,403)

 

5.59

Nonvested as of March 31, 2021

 

359,377

$

3.00

Employee Stock Purchase Plan

In November 2020, stockholders approved the Liquidia Corporation 2020 Employee Stock Purchase Plan (the “2020 ESPP”). As of March 31, 2021, a total of 300,000 shares of the Company’s common stock are reserved for issuance under the 2020 ESPP. Subject to any plan limitations, the 2020 ESPP allows eligible employees to contribute through payroll deductions up to $25,000 per year of their earnings for the purchase of the Company’s common stock at a discounted price per share. The initial three-month offering period is expected to commence on or about June 1, 2021 followed by successive six-month offering periods thereafter beginning March and September. Unless otherwise determined by the administrator, the Company’s common stock will be purchased for the accounts of employees participating in the 2020 ESPP at a price per share that is 85% of the fair market value of the Company’s common stock on the last trading day of the offering period.

6. License Agreements

The Company performs research under a license agreement with The University of North Carolina at Chapel Hill (“UNC”) as amended to date (the “UNC License Agreement”). As part of the UNC License Agreement, the Company holds an exclusive license to certain research and development technologies and processes in various stages of patent pursuit, for use in its research and development and commercial activities, with a term until the expiration date of the last to expire patent subject to the UNC License Agreement, subject to industry standard contractual compliance. Under the UNC License Agreement, the Company is obligated to pay UNC royalties equal to a low single digit percentage of all net sales of drug products whose manufacture, use or sale includes any use of the technology or patent rights covered by the UNC License Agreement. The Company may grant sublicenses of UNC licensed intellectual property in return for specified payments based on a percentage of any fee, royalty or other consideration received.

7. Revenue From Contracts With Customers

On August 1, 2018, the Company partnered with Sandoz in the Promotion Agreement to launch the first-to-file generic of Treprostinil Injection for the treatment of patients with PAH. Under the Promotion Agreement, the Company provides certain promotional and nonpromotional activities on an exclusive basis for the product in the United States of America for the treatment of PAH. In addition, the Company paid Sandoz $20 million at the inception of the Promotion Agreement, in consideration for the right to conduct the promotional and nonpromotional activities for the product. In exchange for its services, the Company is entitled to receive a portion of net profits, as defined within the Promotion Agreement, based on specified profit levels associated with the product.

The Company determined that certain activities within the contract are within the scope of ASC 808, Collaborative Arrangements. The commercialization of the product is a joint operating activity where the Company will provide promotional and nonpromotional activities for Sandoz’s product and Sandoz will be responsible for items such as supply of the product, distribution to customers, managing sales, processing returns, and regulatory matters. Both parties will be active participants, each carrying out its assigned responsibilities, and participating in the joint operating activity and will share in the risks and rewards of the commercialization through the profit-sharing arrangement.

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In addition, the Company determined that the services provided under the Promotion Agreement fall within the scope of Topic 606. The promotional and nonpromotional activities the Company performs are one of the services the Company expects to provide as part of its ordinary activities, and it is receiving consideration for this service from Sandoz in the form of a share of “Net Profits” (as defined in the Promotion Agreement). The Company has one combined performance obligation under the Promotion Agreement, which is to perform promotional and nonpromotional activities to encourage the appropriate use of the product in accordance with the product labeling and applicable law. As such, and in accordance with ASU 2018-18: Clarifying the Interaction between Topic 808 and Topic 606, the Company will account for the entire Promotion Agreement under Topic 606.

The Company derived its revenue during the three months ended March 31, 2021 from the Promotion Agreement. The Company had no revenue during the three months ended March 31, 2020.

8. Property, Plant and Equipment

Property, plant and equipment consisted of the following:

    

March 31, 

    

December 31, 

2021

2020

Lab and build-to-suit equipment

$

7,478,278

$

7,499,645

Office equipment

 

31,205

 

31,205

Furniture and fixtures

 

257,774

 

257,774

Computer equipment

 

404,558

 

404,558

Leasehold improvements

 

11,524,738

 

11,524,738

Construction-in-progress

 

100,820

 

65,820

Total property, plant and equipment

 

19,797,373

 

19,783,740

Accumulated depreciation and amortization

 

(13,501,305)

 

(12,978,170)

Property, plant and equipment, net

$

6,296,068

$

6,805,570

The Company recorded depreciation and amortization expense of $523,135 and $732,029 for the three months ended March 31, 2021 and 2020, respectively.

9. Income Taxes

The Company did not record a federal or state income tax expense or benefit for the three months ended March 31, 2021 and 2020 as a result of the establishment of a full valuation allowance being required against the Company’s net deferred tax assets.

10. Leases, Commitments and Contingencies Commitments

Leases

The Company leases certain laboratory space, office space, and equipment. Leases with an initial term of 12 months or less are not recorded on the balance sheet; the Company recognizes lease expense for these leases on a straight-line basis over the lease term. For lease agreements entered into or reassessed after the adoption of Topic 842, the Company combines lease and non-lease components, if any. Most leases include one or more options to renew. The exercise of lease renewal options is at the Company’s sole discretion. Certain leases also include options to purchase the leased property. Consistent with past practice and current intent, the Company has recognized all such purchase options as part of its right-of-use assets and lease liabilities. The depreciable life of assets and leasehold improvements are limited by the expected lease term unless there is a transfer of title or purchase option reasonably certain of exercise. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The Company conducts its operations from leased facilities of approximately 45,000 square feet in Morrisville, North Carolina with a lease expiration date of October 31, 2026. In addition, the Company leases specialized laboratory

24

equipment under finance leases. 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.

The Company does not have access to certain inputs used by its lessors to calculate the rate implicit in its finance leases. As such, the Company utilized its estimated incremental borrowing rate for the discount rate applied to its finance leases. The original incremental borrowing rate used on finance leases was 7.5%. During February 2021, the Company exercised the lease purchase option for certain finance leases that had expired and entered into a lease modification agreement with its existing lessor for certain other finance leases. The modification resulted in an increase in the remaining lease term of between 24 and 48 months as well as a decrease in the monthly payments associated with the respective modified leases. The incremental borrowing rate used on the modified leases was 6.5%. The lease modification had an immaterial impact on the Company’s condensed consolidated financial statements.

The Company’s lease cost is reflected in the accompanying condensed statements of operations and comprehensive loss as follows:

Three Months Ended March 31, 

    

Classification

    

2021

    

2020

Operating lease cost

 

General and administrative

$

195,118

$

195,118

Finance lease cost:

 

  

 

  

 

  

Amortization of lease assets

 

General and administrative

 

143,451

 

348,951

Interest on lease liabilities

 

Interest expense

 

4,972

 

38,903

Total Lease Cost

$

343,541

$

582,972

The weighted average remaining lease term and discount rates as of March 31, 2021 were as follows:

Weighted average remaining lease term (years):

    

  

Operating leases

 

5.6

Finance leases

 

3.0

Weighted average discount rate:

 

  

Operating leases

 

10.3

%

Finance leases

 

6.6

%

The discount rate for operating leases was estimated based upon market rates of collateralized loan obligations of comparable companies on comparable terms.

The future minimum lease payment as of March 31, 2021 were as follows:

    

Operating

    

Finance

    

Year ending December 31:

Leases

Leases

Total

2021 - nine months remaining

$

907,284

$

289,774

$

1,197,058

2022

 

1,243,934

 

342,315

 

1,586,249

2023

 

1,283,253

 

195,180

 

1,478,433

2024

 

1,316,540

 

114,612

 

1,431,152

2025

 

1,355,923

 

64,142

 

1,420,065

Thereafter

 

1,157,807

 

 

1,157,807

Total minimum lease payments

 

7,264,741

 

1,006,023

 

8,270,764

Less: Interest

 

(1,752,099)

 

(92,112)

 

(1,844,211)

Present value of lease liabilities

$

5,512,642

$

913,911

$

6,426,553

Commitments

In connection with the Merger Transaction, we agreed to issue additional consideration of up to 2,708,333 additional shares of common stock to the former equity holders of RareGen (now Liquidia PAH) contingent on achievement of

25

certain Liquidia PAH revenue targets during the year ending December 31, 2021As of March 31, 2021 and December 31, 2020, the fair value of this contingent consideration was deemed to be immaterial.

In March 2012, the Company entered into an agreement, as amended, with Chasm Technologies, Inc. for manufacturing consulting services related to the Company’s manufacturing capabilities during the term of the agreement. The Company agreed to pay future contingent royalties, totaling no more than $1,500,000, on net sales of certain products. As of March 31, 2021, none of the contingent royalties had been earned.

We enter into contracts in the normal course of business with contract service providers to assist in the performance of our research and development and manufacturing activities. Subject to required notice periods and our obligations under binding purchase orders, we can elect to discontinue the work under these agreements at any time. In addition, we have entered into a multi-year agreement with LGM Pharma, LLC (LGM) to produce active pharmaceutical ingredients for LIQ861.  Under our manufacturing agreement with LGM, we are required to provide rolling forecasts, a portion of which will be considered a binding, firm order, subject to an annual minimum purchase commitment of $3,050,000 for the term of the agreement. The agreement expires five years from the first marketing authorization approval of LIQ861. This minimum commitment was waived for the year ending December 31, 2021.

We also have employment agreements with certain employees which require the funding of a specific level of payments, if certain events, such as a change in control or termination without cause, occur.

Contingencies

The Company from time-to-time is subject to claims and litigation in the normal course of business, none of which the Company believes represent a risk of material loss or exposure.

11. Long-Term Debt

Long-term debt consisted of the following as of March 31, 2021 and December 31, 2020:

    

    

March 31, 

    

December 31, 

Maturity Date

2021

2020

Pacific Western Bank term loan

October 25, 2022

$

$

10,292,485

Silicon Valley Bank term loan

September 1, 2024

10,176,481

Long-term debt

$

10,176,481

$

10,292,485

During 2020, the Company, Liquidia Merger Sub and RareGen Merger Sub entered into a Joinder and Second Amendment to Amended and Restated Loan and Security Agreement, dated as of October 26, 2018 (the “A&R LSA”), with Pacific Western Bank (“PWB”). The A&R LSA included interest only payments through December 2019 with principal and interest payments beginning in January 2020 and was scheduled to mature in October 2022.

On February 26, 2021 (the “Effective Date”), the Company and its two wholly owned subsidiaries, Liquidia Technologies and Liquidia PAH, entered into a Loan and Security Agreement (the “Loan Agreement”) with SVB. The Loan Agreement established a term loan facility in the aggregate principal amount of up to $20.5 million (the “Term Loan Facility”). An initial $10.5 million (the “Term A Loan”) was funded on March 1, 2021 and was used to satisfy the Company’s existing obligations under the A&R LSA, consisting of approximately $9.4 million in outstanding principal and interest, and such obligations are considered fully repaid and terminated as of that date, with the excess proceeds funded to the Company. The Company accounted for the repayment of the A&R LSA in accordance with ASC 405, Extinguishments of Liabilities, which resulted in a loss on extinguishment during the three months ended March 31, 2021 of approximately $53,150, which is included in interest expense in the consolidated statement of operations and comprehensive loss.

Availability of $5.0 million under a second tranche of the Term Loan Facility (the “Term B Loan”) is conditioned upon Liquidia having received tentative FDA approval for LIQ861 by June 30, 2022, and availability of $5.0 million under a third tranche of the Term Loan Facility (the “Term C Loan” and, collectively with the Term A Loan and Term B Loan,

26

the “Term Loans”) is conditioned upon Liquidia having received final and unconditional FDA approval for LIQ861 by December 31, 2022.

As security for its obligations under the Loan Agreement, Liquidia granted SVB a continuing security interest in substantially all of the assets of Liquidia, other than intellectual property.

The Term Loans made under the Term Loan Facility mature on September 1, 2024 (the “Maturity Date”) and have an interest-only monthly payment period through March 31, 2023 (the “Interest-Only Period”). Following the Interest-Only Period, the Company will begin making monthly payments of principal and interest until the Maturity Date. Interest will accrue on the unpaid principal balance of the outstanding Term Loans at a floating per annum rate equal to the greater of (i) the Wall Street Journal prime rate plus 0.75% and (ii) four percent (4.0%). Furthermore, on the earliest to occur of (x) the Maturity Date, (y) the date the Term Loans are repaid in full or (z) the date of termination of the Loan Agreement, the Company shall pay to SVB five percent (5.0%) of the aggregate original principal amount of all Term Loans made by SVB (the “Final Payment”).

In the event that Liquidia elects to terminate the Term Loan Facility in its entirety, it may do so at any time by paying the outstanding principal balance, unpaid accrued interest, the Final Payment and a prepayment fee equal to (i) five percent (5.0%) of the outstanding principal balance, if such prepayment is made during the Interest-Only Period or (ii) zero, if such prepayment is made after the Interest-Only Period and before the Maturity Date.

Subject to certain exceptions, the Loan Agreement contains covenants prohibiting the Company from, among other things, and subject to certain limited exceptions: (a) conveying, selling, leasing, transferring or otherwise disposing of its properties or assets; (b) liquidating or dissolving; (c) engaging in any business other than the business currently engaged in or reasonably related thereto by it or any of its subsidiaries; (d) engaging in mergers or acquisitions; (e) incurrence of additional indebtedness; (f) allowing any lien or encumbrance on any of its property; (g) paying any dividends; (h) repurchasing its equity; and (i) making payment on subordinated debt. In addition, the Loan Agreement requires Liquidia to maintain an unrestricted and unencumbered “Minimum Cash Balance” (as defined therein) equal to at least (i) $30.0 million during the period commencing on the Effective Date and including the date immediately prior to the funding date of the Term B Loan (the “Term B Loan Funding Date”) and (ii) during the period commencing on the Term B Loan Funding Date through and including the date immediately prior to the funding date of the Term C Loan (the “Term C Loan Funding Date”), $35.0 million. Moreover, in the event the Minimum Cash Balance is not achieved during any calendar quarter during the term of the Loan Agreement, the Loan Agreement requires Liquidia to maintain cumulative “Cash Burn” (as defined in the Loan Agreement) for the periods ending March 31, 2021, June 30, 2021, September 30, 2021, December 31, 2021, March 31, 2022 and June 30, 2022 and for each calendar quarter thereafter equal to $10.5 million, $17.0 million, $23.0 million, $28.5 million, $33.5 million and $38.0 million, respectively; provided, however, that the above amounts shall be increased by an amount equal to 75% of the aggregate net cash proceeds received by the Company from the sale of the Company’s equity securities on or after the Effective Date but on or prior to the last day of such calendar quarter; provided, further, that upon the Term C Loan Funding Date, the Cash Burn covenant shall no longer apply. The Company was in compliance with the loan covenants as of March 31, 2021.

The Loan Agreement also contains customary events of default, including among other things, the Company’s failure to make any principal or interest payments when due, the occurrence of certain bankruptcy or insolvency events or the Company’s breach of the covenants under the Loan Agreement, or other material adverse changes relating to Liquidia. Furthermore, per the Loan Agreement, an event of default shall occur upon any formal court ruling against Liquidia that the SVB determines in its good faith business judgment is reasonably likely to prohibit its ability to obtain final approval from the FDA with respect to its New Drug Application for LIQ861 or impair or delay Liquidia’s ability to commercialize LIQ861 as currently contemplated. Upon the occurrence of an event of default, SVB may, among other things, accelerate Liquidia’s obligations under the Loan Agreement.

In connection with the Loan Agreement, the Company issued to SVB a warrant, dated as of the Effective Date (the “SVB Warrant”) to purchase up to 200,000 shares of the Company’s common stock, $0.001 par value per share (the “Common Stock”), of which (x) 100,000 shares vested on the Effective Date, with an exercise price per share equal to $3.05, and (y) 50,000 shares shall become exercisable on each of the Term B Loan Funding Date and Term C Loan Funding Date (if these events occur), with an exercise price per share equal to the lower of (i) the trailing 10-day average

27

price of the Common Stock on the applicable funding date and (ii) the closing price per share of Common Stock on the trading day prior to applicable funding date. The SVB Warrant is exercisable for ten (10) years from the date of issuance, and will be exercised automatically on a net issuance basis if not exercised prior to the expiration date and if the then-current fair market value of one share of Common Stock is greater than the exercise price then in effect.

The Company evaluated the features of the Loan Agreement and SVB Warrant in accordance with ASC 480, Distinguishing Liabilities from Equity and ASC 815, Derivatives and Hedging. The Company determined that the Loan Agreement and Warrant did not contain any features that would qualify as a derivative or embedded derivative. In addition, the Company determined that the SVB Warrant should be classified as equity. The value of the SVB Warrant is included in Additional Paid-in-Capital in the Company’s condensed consolidated balance sheet as of March 31, 2021. The estimated fair value of the SVB Warrant of was calculated using the Black-Scholes Option Pricing Model based on the following inputs:

Expected dividend yield

Risk-free interest rate

 

1.43%

Expected volatility

 

90.8%

Expected life (years)

 

10.0

In accordance with ASC 470, Debt, the value of the Warrant and the Term A Loan were allocated using a relative fair value allocation with $261,000 allocated to the Warrant as a debt discount and additional paid-in-capital and $10,239,000 allocated to the Term A Loan. In addition, the Company incurred fees of approximately $88,000, which were recorded as a reduction in the face value of the Term A Loan. The debt discount and debt issuance costs are being amortized to interest expense and the Final Payment is being accreted using the effective interest method over the term of the Term A Loan.

Scheduled annual maturities of long-term debt as of March 31, 2021 are as follows:

Year ending December 31:

    

  

2021 – nine months remaining

$

2022

 

2023

 

5,250,000

2024

5,250,000

Thereafter

 

Total

 

10,500,000

Less: Unamortized discount, debt issuance costs and accretion

 

(323,519)

Less: Current portion of long-term debt

 

Long-term debt, noncurrent

$

10,176,481

28

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion and analysis of our financial condition and results of operations together with our condensed consolidated financial statements and related notes appearing in this Quarterly Report on Form 10-Q. This discussion and other parts of this Quarterly Report contain forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. As a result of many factors, including those factors set forth in the “Risk Factors” section of this Quarterly Report, our actual results could differ materially from the results described in, or implied by, the forward-looking statements contained in the following discussion and analysis.

Overview

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

We generate revenue pursuant to a Promotion Agreement between Liquidia PAH and Sandoz Inc. (“Sandoz”) sharing profit derived from the sale of the first-to-file fully 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 in the treatment of pulmonary arterial hypertension (“PAH”), 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 LIQ861 upon 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 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. We have development experience in inhaled therapies, vaccines, biologics, and implants, among others.

Since our inception, we have incurred significant operating losses. Our net loss was $9.2 million for the three months ended March 31, 2021 and $59.8 million and $47.6 million for the years ended December 31, 2020 and 2019, respectively. As of March 31, 2021, we had an accumulated deficit of $284.2 million. We expect to incur significant expenses and operating losses for the foreseeable future as we advance product candidates through clinical trials, seek regulatory approval and pursue commercialization of any approved product candidates. In addition, if we obtain marketing approval for any of our product candidates, we expect to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution. In addition, we may incur expenses in connection with the in-license or acquisition of additional product candidates.

Product Pipeline

We are currently developing one product candidate for which we hold worldwide commercial rights: LIQ861 to treat PAH.

LIQ861, is an inhaled dry powder formulation of treprostinil designed to improve the therapeutic profile of treprostinil by enhancing deep lung delivery and achieving higher dose levels than current inhaled therapies while using a convenient, east-to-use dry-powder inhaler (“DPI”). We submitted the New Drug Application (“NDA”) for LIQ861 in January 2020. In November 2020, the Company received a Complete Response Letter (“CRL”) issued by the Food and Drug Administration (“FDA”) with respect to the NDA for LIQ861. In May 2021, the Company resubmitted the NDA for LIQ861 in response to the CRL.

29

Recent Events

Issuance of Common Stock in Private Placement

On April 12, 2021, we entered into a Common Stock Purchase Agreement (the “Purchase Agreement”) with a fund and account managed by Caligan Partners LP and certain other accredited investors for the sale by the Company in a private placement (the “Private Placement”) of an aggregate of 8,626,037 shares of the Company’s Common Stock at a purchase price of $2.52 per share.

The Private Placement closed on April 13, 2021 and we received gross proceeds of approximately $21.7 million. We intend to use the proceeds from the Private Placement to strengthen its commercial capability for the introduction of LIQ861 and the subcutaneous administration of Treprostinil Injection, for growth initiatives, and for general corporate purposes.

510(k) Clearance of RG 3ml Medication Cartridge

On March 26, 2021, the FDA granted clearance for the 510(k) application submitted by Liquidia PAH’s manufacturing partner, Chengdu Shifeng Medical Technologies LTD (“Chengdu”) for the RG 3ml Medication Cartridge (the “RG Cartridge”) which is indicated for use with the CADD-MS 3 pump. The CADD-MS 3 pump has been used for the subcutaneous administration of Remodulin® for more than 10 years and is manufactured by Smiths Medical.

In connection with the clearance of the RG Cartridge, Liquidia PAH entered into a Distributor Agreement (the “Distributor Agreement”) with Future Diagnostics, LLC (“Future Diagnostics”) effective as of April 1, 2021 related to the sale and distribution of the RG Cartridge. Under the terms of the Distributor Agreement, Future Diagnostics will have the non-exclusive right to purchase RG Cartridges from Chengdu and sell RG Cartridges to certain customers identified by Liquidia PAH. Under the terms of the Distributor Agreement, Future Diagnostics will pay to Liquidia PAH a commission on all sales of the RG Cartridge.

Termination of Development of LIQ865

In April 2021, we decided to terminate the development of LIQ865, a sustained-release formulation of bupivacaine targeting the treatment of local, post-operative pain. We have chosen to focus internal resources on maximizing the value of our PAH assets and to build a pipeline more synergistic with our expertise in cardio-pulmonary and rare diseases. In the third quarter 2020, we initiated partnering conversations with multiple parties experienced in treating pain and/or commercializing hospital-based products. At this time, we have not identified any party that is willing to collaborate on additional development of LIQ865. As a result, we have formally concluded the development program.

Components of Consolidated Statements of Operations

Revenue

We primarily generate revenue pursuant to the Promotion Agreement, under which we share in the profit derived from the sale of Treprostinil Injection in the United States. Liquidia PAH has the exclusive rights to conduct commercial activities to encourage the appropriate use of Treprostinil Injection. Previously, we also derived revenue from licensing our proprietary PRINT® technology and from conducting research, development and manufacturing of novel products by applying our proprietary PRINT® technology.

Cost of Revenue

Cost of revenue consists of (i) the cost of employing a targeted sales force calling on physicians and hospital pharmacies involved in the treatment of PAH, as well as key stakeholders involved in the distribution and reimbursement of Treprostinil Injection and (ii) a portion of the amortization of the intangible asset associated with the Promotion Agreement. Previously, cost of revenue also included amortization of license fees owed to UNC upon our receipt of

30

licensing revenues. We amortize the Promotion Agreement in a manner consistent with our recognition of the related revenue.

Research and Development Expenses

Research and development expense consists of expenses incurred in connection with the development of our product candidates. We expense research and development costs as incurred. These expenses include:

expenses incurred under agreements with contract research organizations as well as investigative sites and consultants that conduct our clinical trials and preclinical studies;
manufacturing process development and scale-up expenses and the cost of acquiring and manufacturing preclinical and clinical trial materials and commercial materials, including manufacturing validation batches;
outsourced professional scientific development services;
employee-related expenses, which include salaries, benefits and stock-based compensation for personnel in research and development functions;
expenses relating to regulatory activities, including filing fees paid to regulatory agencies;
laboratory materials and supplies used to support our research activities; and
allocated expenses for utilities and other facility-related costs.

Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. In the near term we expect our research and development expenses to decrease, however, levels of research and development spending are highly dependent upon the progression of product candidates. The successful development of our product candidates is highly uncertain. At this time, we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete the remainder of the development of, or when, if ever, material net cash inflows may commence from any of our product candidates. This uncertainty is due to the numerous risks and uncertainties associated with the duration and cost of clinical trials, which vary significantly over the life of a project as a result of many factors, including:

the number of clinical sites included in the trials;
the length of time required to enroll suitable patients;
the number of patients that ultimately participate in the trials;
the number of doses patients receive;
the duration of patient follow-up; and
the results of our clinical trials.

Our expenditures are subject to additional uncertainties, including the terms and timing of regulatory approvals, and the expense of filing, prosecuting, defending and enforcing any patent claims or other intellectual property rights. We may never succeed in achieving regulatory approval for any of our product candidates. We may obtain unexpected results from our clinical trials. We may elect to discontinue, delay or modify clinical trials of some product candidates or focus on others. A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate. For

31

example, if the FDA or other regulatory authorities were to require us to conduct clinical trials beyond those that we currently anticipate, or if we experience significant delays in enrollment in any of our clinical trials, or our ability to manufacture and supply product, we could be required to expend significant additional financial resources and time on the completion of clinical development. Drug commercialization will take several years and millions of dollars in development costs.

General and Administrative Expenses

General and administrative expenses consist principally of salaries and related costs for personnel in executive, administrative, finance and legal functions, including stock-based compensation. Other general and administrative expenses include facility related costs, patent filing and prosecution costs and professional fees for marketing, legal, auditing and tax services and insurance costs. When we believe a regulatory approval of a product candidate appears likely, we anticipate an increase in payroll and expense as a result of our preparation for commercial operations, especially as it relates to sales and marketing.

Other Income (Expense)

Other income (expense) is comprised primarily of interest income and expense. Interest income consists of interest earned on our cash deposits. Interest expense consists of interest charges on leases and debt. These charges include monthly recurring interest on such obligations in addition to non-cash charges. Non-cash charges include loss on extinguishment, interest accretion, expensing of debt issuance costs and amortization of discounts on long-term debt to interest expense.

Critical Accounting Estimates

We discussed our accounting policies and significant assumptions used in our estimates in Note 2 of our audited financial statements included in our 2020 Annual Report on Form 10-K. There have been no material changes during the three months ended March 31, 2021 to our critical accounting policies, significant judgments and estimates disclosed in our 2020 Annual Report on Form 10-K.

Results of Operations

Three Months Ended March 31, 2021 compared with the Three Months Ended March 31, 2020

The following table summarizes the results of our operations for each of the three-month periods ended March 31, 2021 and 2020, together with the changes in those items in dollars and as a percentage (in thousands, except for percentages):

Three Months Ended

 

March 31, 

$

%

 

    

2021

    

2020

    

Change

    

Change

 

 

Revenue

$

3,084

$

$

3,084

*

Costs and expenses:

 

  

 

  

  

  

Cost of revenue

 

694

 

694

*

Research and development

 

6,054

 

10,823

(4,769)

(44.1)

%

General and administrative

 

5,337

 

3,823

1,514

39.6

%

Total costs and expenses

 

12,085

 

14,646

(2,561)

(17.5)

%

Loss from operations

 

(9,001)

 

(14,646)

5,645

(38.5)

%

Other income (expense):

Interest income

 

21

 

110

(89)

(80.9)

%

Interest expense

 

(203)

 

(255)

52

(20.4)

%

Total other expense, net

(182)

(145)

(37)

25.5

%

Net loss and comprehensive loss

$

(9,183)

$

(14,791)

$

5,608

(37.9)

%

*

Not meaningful

32

Revenue

We recognized no revenue for the three months ended March 31, 2020, compared to $3.1 million for the three months ended March 31, 2021. Revenue recognized during 2021 related to the Promotion Agreement after the acquisition of Liquidia PAH in November 2020.

Cost of Revenue

We recognized no cost of revenue for the three months ended March 31, 2020, compared to $0.7 million for the three months ended March 30, 2021. Cost of revenue recognized during 2021 related to the Promotion Agreement as noted above.

Research and Development Expenses

Research and development expenses were $6.1 million for the three months ended March 31, 2021 compared with $10.8 million for the three months ended March 31, 2020, a decrease of $4.7 million or 44.1%. The decrease primarily related to lower expenses from our LIQ861 clinical program, which was substantially completed prior to filing the NDA in April 2020, lower expenses from our LIQ865 clinical program, and lower employee and consulting expenses. During the three months ended March 31, 2021, we incurred $2.7 million related to LIQ861 compared to $6.2 million during the three months ended March 31, 2020. During the three months ended March 31, 2021, we incurred less than $0.1 million related to LIQ865 compared to $0.4 million during the three months ended March 31, 2020. Research and development expenses for the three months ended March 31, 2021 and 2020 also included $2.2 million and $3.4 million in consulting and personnel costs, including stock-based compensation, respectively. This decrease of $1.2 million or 35.3% was primarily driven by lower headcount year-over-year.

General and Administrative Expenses

General and administrative expenses were $5.3 million for the three months ended March 31, 2021, compared with $3.8 million for the three months ended March 31, 2020. The increase of $1.5 million, or 39.6%, was primarily due to $2.1 million higher legal and professional fees associated with corporate activities as well as our ongoing LIQ861-related litigation offset by lower consulting and personnel expenses as a result of lower headcount year-over-year. General and administrative expenses for the three months ended March 31, 2021, and 2020 included $1.7 million and $2.7 million, in consulting and personnel costs, including stock-based compensation, respectively.

Liquidity and Capital Resources

As of March 31, 2021 and December 30, 2020, we had cash and cash equivalents of $53.6 million and $65.3 million, respectively.

We have financed our growth and operations through a combination of funds generated from revenues, the issuance of convertible preferred stock and common stock, finance leases, bank borrowings and the issuance of convertible notes. Our principal uses of cash and cash equivalents have been for working capital requirements and capital expenditures. As of March 31, 2021, we had a cash and cash equivalents of $53.6 million, stockholders’ equity of $62.9 million and an accumulated deficit of $284.2 million.

In April 2021, we entered into a Common Stock Purchase Agreement (the “Purchase Agreement”) with certain institutional, accredited investors (the “Purchasers”) for the sale by us in a private placement (the “Private Placement”) of an aggregate of 8,626,037 shares (the “Private Placement Shares”) of our common stock, at a purchase price of $2.52 per Private Placement Share. The gross proceeds from the sale of the Private Placement Shares were $21.7 million.

In July 2020, we closed an underwritten public offering of 9,375,000 shares of our common stock at a price of $8.00 per share. The gross proceeds from the offering were $75.0 million and net proceeds were approximately $70.3 million, after deducting underwriting discounts and commissions and other offering expenses.

33

In August 2019, we entered into a sales agreement (the “ATM Agreement”) with Jefferies to issue and sell shares of our common stock, having an aggregate offering price of up to $40.0 million, from time to time during the term of the ATM Agreement, through an “at-the-market” equity offering program at our sole discretion, under which Jefferies acted as our agent and/or principal. We paid Jefferies a commission equal to 3.0% of the gross proceeds of any common stock sold through Jefferies under the ATM Agreement. During the year ended December 31, 2020, we sold 131,425 shares of our common stock for net proceeds of $0.7 million, after deducting underwriting discounts and other offering expenses under the ATM Agreement. We anticipate entering into a new sales agreement with Jefferies with Liquidia Corporation as the issuer in 2021, because the ATM Agreement is no longer in effect.

In October 2018, we and PWB entered into an Amended and Restated Loan and Security Agreement (the “A&R LSA”) in which we received an initial tranche of $11.0 million to extinguish our then-current debt of $8.0 million and repay in full the outstanding indebtedness under a previously issued promissory note. The A&R LSA provided for access to a second tranche of up to $5.0 million, the full amount of which we drew in June 2019. The second tranche became accessible as a result of the full enrollment of the Company’s LIQ861 INSPIRE clinical trial, without observing any materially adverse data through the two-week endpoint.

In February 2021, we entered into a Loan and Security Agreement (the “Loan Agreement”) with SVB, the proceeds of which were used to pay off the approximately $9.4 million in outstanding principal and interest under A&R LSA. We received a 24-month interest-only period and also have access to additional tranches of capital, pending achievement of certain milestones.

The Loan Agreement established a term loan facility in the aggregate principal amount of up to $20.5 million (the “Term Loan Facility”). An initial $10.5 million (the “Term A Loan”) was funded on March 1, 2021. Availability of $5.0 million under the second tranche of the Term Loan Facility (the “Term B Loan”) is conditioned upon us having received tentative U.S. Food and Drug Administration (FDA) approval for LIQ861 by June 30, 2022, and availability of $5.0 million under the third tranche of the Term Loan Facility (the “Term C Loan” and, collectively with the Term A Loan and Term B Loan, the “Term Loans”) is conditioned upon us having received final and unconditional FDA approval for LIQ861 by December 31, 2022. The entire Term A Loan was used to satisfy our existing obligations under our previously disclosed Amended and Restated Loan and Security Agreement, dated as of October 26, 2018, as amended, by and between us and PWB, consisting of approximately $9.4 million in outstanding principal and interest, and such obligations are considered fully repaid and terminated.

As security for its obligations under the Loan Agreement, we granted SVB a continuing security interest in substantially all of our assets, other than intellectual property.

The Term Loans made under the Term Loan Facility mature on September 1, 2024 (the “Maturity Date”) and have an interest-only monthly payment period through March 31, 2023 (the “Interest-Only Period”). Following the Interest-Only Period, we will begin making monthly payments of principal and interest until the Maturity Date. Interest will accrue on the unpaid principal balance of the outstanding Term Loans at a floating per annum rate equal to the greater of (i) the Wall Street Journal prime rate plus 0.75% and (ii) four percent (4.0%). Furthermore, on the earliest to occur of (x) the Maturity Date, (y) the date the Term Loans are repaid in full or (z) the date of termination of the Loan Agreement, we shall pay to SVB five percent (5.0%) of the aggregate original principal amount of all Term Loans made by SVB (the “Final Payment”).

In the event that we elect to terminate the Term Loan Facility in its entirety, we may do so at any time by paying the outstanding principal balance, unpaid accrued interest, the Final Payment and a prepayment fee equal to (i) five percent (5.0%) of the outstanding principal balance, if such prepayment is made during the Interest-Only Period or (ii) zero, if such prepayment is made after the Interest-Only Period and before the Maturity Date.

Subject to certain exceptions, the Loan Agreement contains covenants prohibiting us from, among other things, and subject to certain limited exceptions: (a) conveying, selling, leasing, transferring or otherwise disposing of our properties or assets; (b) liquidating or dissolving; (c) engaging in any business other than the business currently engaged in or reasonably related thereto by us or any of our subsidiaries; (d) engaging in mergers or acquisitions; (e) incurrence of additional indebtedness; (f) allowing any lien or encumbrance on any of our property; (g) paying any dividends; (h)

34

repurchasing our equity; and (i) making payment on subordinated debt. In addition, the Loan Agreement requires us to maintain an unrestricted and unencumbered “Minimum Cash Balance” (as defined therein) equal to at least (i) $30.0 million during the period commencing on the Effective Date and including the date immediately prior to the funding date of the Term B Loan (the “Term B Loan Funding Date”) and (ii) during the period commencing on the Term B Loan Funding Date through and including the date immediately prior to the funding date of the Term C Loan (the “Term C Loan Funding Date”), $35.0 million. Moreover, in the event the Minimum Cash Balance is not achieved during any calendar quarter during the term of the Loan Agreement, the Loan Agreement requires us to maintain cumulative “Cash Burn” (as defined in the Loan Agreement) for the periods ending March 31, 2021, June 30, 2021, September 30, 2021, December 31, 2021, March 31, 2022 and June 30, 2022 and for each calendar quarter thereafter equal to $10.5 million, $17.0 million, $23.0 million, $28.5 million, $33.5 million and $38.0 million, respectively; providedhowever, that the above amounts shall be increased by an amount equal to 75% of the aggregate net cash proceeds received by us from the sale of our equity securities on or after the Effective Date but on or prior to the last day of such calendar quarter; providedfurther, that upon the Term C Loan Funding Date, the Cash Burn covenant shall no longer apply.

The Loan Agreement also contains customary events of default, including among other things, our failure to make any principal or interest payments when due, the occurrence of certain bankruptcy or insolvency events or our breach of the covenants under the Loan Agreement, or other material adverse changes relating to our company. Furthermore, per the Loan Agreement, an event of default shall occur upon any formal court ruling against us that SVB determines in its good faith business judgment is reasonably likely to prohibit our ability to obtain final approval from the FDA with respect to our NDA for LIQ861 or impair or delay our ability to commercialize LIQ861 as currently contemplated. Upon the occurrence of an event of default, SVB may, among other things, accelerate our obligations under the Loan Agreement.

In connection with the Loan Agreement, we issued to SVB a warrant, dated as of the Effective Date (the “SVB Warrant”), to purchase up to 200,000 shares of our common stock, of which (x) 100,000 shares vested on the Effective Date, with an exercise price per share equal to $3.05, and (y) 50,000 shares shall vest on each of the Term B Loan Funding Date and Term C Loan Funding Date, with an exercise price per share equal to the lower of (i) the trailing 10-day average price of the common stock on the applicable funding date and (ii) the closing price per share of common stock on the trading day prior to applicable funding date. The SVB Warrant is exercisable for ten (10) years from the date of issuance, and will be exercised automatically on a net issuance basis if not exercised prior to the expiration date and if the then-current fair market value of one share of common stock is greater than the exercise price then in effect.

Funding Requirements

We plan to focus in the near-term on the development, regulatory approval and potential commercialization of LIQ861. We expect to incur significant expenses and operating losses for the foreseeable future as we advance product candidates through clinical trials, seek regulatory approval and pursue commercialization of any approved product candidates. In addition, we plan to commercialize LIQ861, continue sales of Treprostinil Injection through our Liquidia PAH acquisition, expand our corporate infrastructure and continue to invest in research and development efforts to explore additional product candidates. We may not be able to complete the development and initiate commercialization of these programs if, among others, the FDA does not approve LIQ861 when we expect, or at all.

Our primary uses of capital are, and we expect will continue to be, compensation and related personnel expenses, clinical costs, manufacturing process development, external research and development services, laboratory and related supplies, legal and other regulatory expenses, sales, marketing, and commercialization expenses, administrative and overhead costs and debt service. Our future funding requirements will be heavily determined by the resources needed to support development of our product candidates. Additionally, as a publicly traded company we incur significant legal, accounting and other expenses. In addition, the Sarbanes-Oxley Act, as well as rules adopted by the SEC and Nasdaq Stock Market LLC (“Nasdaq”) require public companies to implement specified corporate governance practices.

We believe that our current cash balance will enable us to fund our operating expenses and capital expenditure requirements beyond the projected expiration of the regulatory stay in October 2022. We are in the process of implementing a more cost-efficient operating plan to further improve our cashflow. In addition, the clearance of the RG 3ml Medication Cartridge has the potential to improve our cashflow going forward. We have based these estimates on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect. We

35

may require additional capital to commercialize our product candidates, if we receive regulatory approval, and to pursue in-licenses or acquisitions of other product candidates. If we receive regulatory approval for LIQ861, we expect to incur significant commercialization expenses related to product manufacturing, sales, marketing and distribution. Additional funds may not be available on a timely basis, on favorable terms, or at all, and such funds, if raised, may not be sufficient to enable us to continue to implement our long-term business strategy. If we are unable to raise sufficient additional capital, we may need to substantially curtail our planned operations and the pursuit of our growth strategy.

We may raise additional capital through non-dilutive licensing activities, other business arrangements or the sale of equity or convertible debt securities. In such an event, the ownership of our existing shareholders may be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights associated with holdings of our common stock.

Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceuticals, we are unable to estimate the exact amount of our working capital requirements. Our future funding requirements will depend on many factors, including:

the number and characteristics of the product candidates we pursue;
the scope, progress, results and costs of researching and developing our product candidates, and conducting preclinical studies and clinical trials;
the timing of, and the costs involved in, obtaining regulatory approvals for our product candidates;
the cost of manufacturing our product candidates and any product we successfully commercialize;
our ability to establish and maintain strategic collaborations, licensing or other arrangements and the financial terms of such agreements;
the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims, including litigation costs and the outcome of such litigation; and
the timing, receipt and amount of sales of, or milestone payments related to or royalties on, our current or future product candidates, if any.

See “Risk Factors” for additional risks associated with our substantial capital requirements.

Cash Flows

The following table summarizes our sources and uses of cash and cash equivalents:

Three Months Ended

March 31, 

    

2021

    

2020

(in thousands)

Net cash provided by (used in):

  

  

Operating activities

$

(12,386)

$

(14,438)

Investing activities

 

(52)

 

(182)

Financing activities

 

759

 

(1,048)

Net decrease in cash and cash equivalents

$