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Liquidia Technologies’ Stock to be Sold in IPO

If you’re lucky enough to raise funding for your startup, you will then need to contend with new stakeholders that want to see “an exit”. When we refer to an exit, we refer to an event that takes place where the investors who gave you money, then get their money back – ideally, more money than they gave you initially. These exits usually come in the form of an acquisition or an Initial Public Offering (IPO). In the case of an IPO, retail investors can then buy shares of your startup since they will now be publicly traded. That’s why we keep a close eye on IPOs to see what’s being offered, especially those that are relevant to the themes we cover here on Nanalyze. As it turns out, a company we profiled a few years back called Liquidia Technologies has filed for an IPO.

A Liquidia Technologies IPO

Founded way back in 2004, Liquidia Technologies was a company we first profiled back in March of 2016 in an article titled “Liquidia: Joseph DeSimone’s Nanotechnology Company“. The company’s technology is called PRINT (Particle Replication In Non-Wetting Templates), and it involves using lithographic techniques from the semiconductor industry to rapidly design and manufacture precisely engineered particles of virtually any size, shape, or composition. Here’s the process simply explained:

Particles can then be created that are made up of active ingredients from any drug, and by controlling the size and shape of the particles, efficacy can be improved. This means that some drugs can be administered more effectively when you start changing the size and shape of drug particles. In other words, it’s the whole notion of “nano drug delivery” that we were all getting excited about back in 2004.

That’s the basic idea behind PRINT technology, and Liquidia can decide to take several directions with their business model. The first would be an “Intel-inside” approach which involves licensing the technology to drug manufacturers. The second approach would be to develop the drugs themselves. Turns out, Liquidia has decided to do a bit of both.

Liquidia Technologies’ Pipeline

When it comes to drugs being developed in-house, here’s Liquidia’s pipeline:

You may notice that Liquidia seems to have jumped from Phase 1 right to Phase 3 for their LIQ861 product. That’s because of something in the footnote above called “approval under the 505(b)(2) pathway”. Let’s talk about that for a minute.

505(b)(2) Drug Approval

Camargo Pharmaceutical Services gives a good definition of 505(b)(2) as follows:

The 505(b)(2) new drug application (NDA) is one of three U.S. Food and Drug Administration (FDA) drug approval pathways and represents an appealing regulatory strategy for many clients.

While the name sounds a bit cryptic, the idea behind 505(b)(2) is actually quite simple. A company may wish to take an existing drug that has already been given FDA approval and change the drug delivery method so that patients or doctors “prefer the improved version of the drug over the previous version of the drug”. Since they are working with a drug that has already been approved, fewer studies are needed and time-to-market can be accelerated. That’s why Liquidia is using treprostinil as the active pharmaceutical ingredient of LIQ861. Treprostinil is an approved drug – currently being provided by a sole supplier called LGM Pharma – and it’s currently used to treat a disease called Pulmonary Arterial Hypertension (PAH). Let’s talk about PAH for a minute.

Pulmonary Arterial Hypertension (PAH)

It’s not so important to understand what PAH is, but rather to understand how big of a market exists for PAH drugs. Turns out that PAH is a lung disease that’s quite rare, with “an estimated prevalence in the United States expected to be between 25,000 and 30,000 patients by 2020” according to Liquidia. Yet even with those small numbers, it’s still a $3.7 billion market:

Decision Resources Group, an independent industry research firm, estimated that in 2016 more than 50% of patients with PAH in the United States were prescribed treprostinil across its three routes of administration (oral, inhaled and parenteral infusion), generating revenue that represented about one-third of the approximately $3.7 billion U.S. market for PAH drug therapies

Now that we know the market size for PAH drug therapies, we can look at the potential for inhaled therapies. Why inhaled? That’s because PAH is a lung disease, and it should be obvious why administering the drug directly into the lungs makes more sense than shooting it up for example. So, let’s talk about inhaled PAH drug therapies.

Inhaled PAH Drug Therapies

As it turns out, there is already an inhaled drug therapy on the market that uses the same active drug that Liquidia uses. It’s called Tyvaso® (treprostinil, inhaled solution), and it’s being marketed by United Therapeutics Corporation in the United States. (If you want to know more about United Therapeutics, check out our past article on Xenotransplantation – Harvesting Organs from Pigs). While United Therapeutics’ Tyvaso is the current standard of care among inhaled therapies for PAH, there is one problem. Patients need to use an unwieldy contraption, a nebulizer, to inhale the drug. Let’s touch on some methods of inhaling drugs that don’t involve rolling up a twenty-dollar bill and finding a smooth surface.

There are a number of different ways that legal drugs can be inhaled, one of which is a nebulizer:

Come on Johnny, stick this bong-looking thing in your mouth and inhale your medicine like a good boy

While most people decide not to inhale liquid because it can kill you, using a nebulizer lets you inhale small quantities of liquid in the form of a fine mist. It’s a great drug delivery device for lung diseases, but also requires lots of overhead. In the words of Liquidia, “nebulizers require regular care and maintenance, including daily cleaning and access to additional parts and supplies, such as distilled water and a power source, all of which compromise the portability of the device and the quality of life of patients.” That’s where Liquidia comes in with their “inhaled dry powder treprostinil” that can be administered using a disposable palm-sized Dry Powder Inhaler (DPI) which might look something like this:

A bog-standard dry powder inhaler or DPI

That pretty much concludes the simple story behind Liquidia’s lead drug candidate. It’s more easy-to-use than existing drugs and consequently the go-to-market time should be much shorter. Liquidia also have a second drug candidate which is less far along – in Phase 1 now – which is an injectable pain management medication. Aside from that, they also have expressed intentions to “collaborate with leading pharmaceutical companies to develop their own product candidates.” This makes us wonder about what’s happening with their GlaxoSmithKline (GSK) relationship.

Liquidia Technologies and GlaxoSmithKline (GSK)

As we noted in our first article on Liquidia, GSK became involved back in 2012 when they “announced a broad multi-year collaboration with the potential for several hundred million dollars to be paid to Liquidia for developing certain vaccines and inhaled product candidates on the PRINT platform.” Fast forward to today and things don’t seem so bright. Here’s a telling statement from the Liquidia S-1 filing:

Revenues from research and development services under the GSK ICO Agreement were $3.1 million and $0.2 million for the year ended December 31, 2017 and the three months ended March 31, 2018, respectively. We expect that such revenues will be less than $250,000 during 2018 as a result of GSK’s modified plans.

Long story short, GSK appears to be pulling back on R&D spending relating to the PRINT technology platform. In 2017 they spent over $3 million and in 2018 will spend just a small fraction of that, the majority of which was spent in Q1-2018. Liquidia goes on to say that they do not expect any near-term revenues from GSK and that they “do not know if GSK will initiate development of a new program that will generate comparable revenue”. As it turns out, GSK was responsible for nearly all of Liquidia’s revenues over the past two years – 90% of total revenues in 2016 ($11.9 million) and 84% of total revenues in 2017 ($6 million). That number then falls off drastically in 2018 to $250,000, which is perhaps why they’re seeking around $50 million in funding from an IPO to supplement the $17.6 million they have in cash-on-hand at the moment.

Conclusion

While it may make for an interesting story, companies like Liquidia present a great deal of risk for investors. If their lead drug flops, shares would likely plummet. Existing shareholders would feel like they were caught holding the bag, and new shareholders would question the company’s ability to execute on future drugs. A weakened share price combined with lots of negativity would make it difficult to raise the additional funds needed to bring other drugs to market. This is where companies can easily end up like Bind Therapeutics – bankrupt. On the other hand, if the stars are aligned correctly and the angels begin to sing, Liquidia could have a blockbuster drug on their hands and get acquired for a premium. In either case, expect lots of share price volatility. Like most pharma stocks, it’s a high-risk, high-reward game.

Should the Liquidia Technologies IPO take place as planned, the stock will trade under the ticker “LQDA”.

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