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, 2022

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 3, 2022, there were 64,344,476 shares of the registrant’s common stock outstanding.

LIQUIDIA CORPORATION

		Page
PART I. FINANCIAL INFORMATION
Item 1.	Condensed Financial Statements (unaudited)	6
	Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021	6
	Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three Months Ended March 31, 2022 and 2021	7
	Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2022 and 2021	8
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2022 and 2021	9
	Notes to Condensed Consolidated Financial Statements	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35
Item 4.	Controls and Procedures	36
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	36
Item 1A.	Risk Factors	39
Item 6.	Exhibits	75
	Signatures	76

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

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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 YUTREPIA, the potential for, and timing regarding, eventual final approval by the United States Food and Drug Administration (the “FDA”) of and our ability to commercially launch YUTREPIA, 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, the inter partes review with the Patent Trial and Appeal Board of the U.S. Patent and Trademark Office or any appeals of any decisions issued by the U.S. District Court for the District of Delaware or the Patent Trial and Appeal Board of the U.S. Patent and Trademark Office; and (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;

● 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.;

● our ability to draw down on our debt facility with Silicon Valley Bank (“SVB”) and SVB Innovation Credit Fund VIII, L.P. (“Innovation”) and our ability to satisfy the covenants contained in the Amended and Restated Loan and Security Agreement with SVB and Innovation (the “A&R SVB LSA”);

● 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;

● adverse outcomes of pending or threatened litigation or governmental investigations, if any;

● 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;

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● conditions beyond our control, such as natural disasters, global pandemics (including 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 pandemic on our company and our financial condition and results of operations. The forward-looking statements in this Quarterly 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. 

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Unless the context otherwise requires, references in this Quarterly Report on Form 10-Q to “we,” “us”, “our”, “Liquidia” and the “Company” refer 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.

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PART I. FINANCIAL INFORMATION

Item 1. Condensed Financial Statements

Liquidia Corporation

Condensed Consolidated Balance Sheets (unaudited)

(in thousands, except share and per share data)

	March 31,		December 31,
	2022		2021
Assets
Current assets:
Cash and cash equivalents	$	57,794	$	57,494
Accounts receivable, net		3,287		2,990
Prepaid expenses and other current assets		874		792
Total current assets		61,955		61,276
Property, plant and equipment, net		4,614		5,017
Operating lease right-of-use assets, net		2,342		2,412
Indemnification asset, related party		6,420		6,282
Contract acquisition costs, net		9,759		10,138
Intangible asset, net		4,225		4,390
Goodwill		3,903		3,903
Other assets		307		311
Total assets	$	93,525	$	93,729
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	1,666	$	1,070
Accrued compensation		845		3,157
Other accrued expenses		4,327		2,014
Current portion of operating lease liabilities		804		775
Current portion of finance lease liabilities		334		311
Total current liabilities		7,976		7,327
Litigation finance payable		6,419		6,143
Long-term operating lease liabilities		4,018		4,232
Long-term finance lease liabilities		247		352
Long-term debt		19,476		10,410
Total liabilities		38,136		28,464
Commitments and contingencies
Stockholders’ equity:
Preferred stock — 10,000,000 shares authorized, none outstanding		—		—
Common stock — $0.001 par value, 80,000,000 shares authorized, 53,054,158 and 52,287,737 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively		53		52
Additional paid-in capital		380,860		374,794
Accumulated deficit		(325,524)		(309,581)
Total stockholders’ equity		55,389		65,265
Total liabilities and stockholders’ equity	$	93,525	$	93,729

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

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Liquidia Corporation

Condensed Consolidated Statements of Operations and Comprehensive Loss (unaudited)

(in thousands, except share and per share data)

	Three Months Ended March 31,
	2022		2021
Revenue	$	3,492	$	3,084
Costs and expenses:
Cost of revenue		694		694
Research and development		4,728		6,054
General and administrative		12,542		5,337
Total costs and expenses		17,964		12,085
Loss from operations		(14,472)		(9,001)
Other income (expense):
Interest income		4		21
Interest expense		(478)		(150)
Loss on extinguishment of debt		(997)		(53)
Total other income (expense), net		(1,471)		(182)
Net loss and comprehensive loss	$	(15,943)	$	(9,183)
Net loss per common share, basic and diluted	$	(0.30)	$	(0.21)
Weighted average common shares outstanding, basic and diluted		52,465,283		43,443,361

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

7

Liquidia Corporation

Condensed Consolidated Statements of Stockholders’ Equity (unaudited)

(in thousands, except shares amounts)

	Common	Common		Additional				Total
	Stock	Stock		Paid in		Accumulated		Stockholders’
	Shares	Amount		Capital		Deficit		Equity
Balance as of December 31, 2021	52,287,737	$	52	$	374,794	$	(309,581)	$	65,265
Issuance of common stock upon exercise of stock options	143,048		—		593		—		593
Issuance of common stock upon vesting of restricted stock units	1,690		—		—		—		—
Issuance of common stock under employee stock purchase plan	5,017		—		28		—		28
Issuance of warrants	—		—		1,317		—		1,317
Equity consideration for acquisition	616,666		1		(1)		—		—
Stock-based compensation	—		—		4,129		—		4,129
Net loss	—		—		—		(15,943)		(15,943)
Balance as of March 31, 2022	53,054,158	$	53	$	380,860	$	(325,524)	$	55,389

	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	$	346,045	$	(275,002)	$	71,086
Issuance of common stock upon exercise of stock options	281		—		—		—		—
Issuance of common stock upon vesting of restricted stock units	10,366		—		—		—		—
Issuance of warrant	—		—		261		—		261
Stock-based compensation	—		—		745		—		745
Net loss	—		—		—		(9,183)		(9,183)
Balance as of March 31, 2021	43,346,924	$	43	$	347,051	$	(284,185)	$	62,909

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

8

Liquidia Corporation

Condensed Consolidated Statements of Cash Flows (unaudited)

(in thousands)

	Three Months Ended March 31,
	2022		2021
Operating activities
Net loss	$	(15,943)	$	(9,183)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation		4,185		745
Depreciation and amortization		947		1,609
Non-cash lease expense		70		53
Loss on extinguishment of debt		997		53
Non-cash interest (income) expense		(6)		71
Changes in operating assets and liabilities:
Accounts receivable, net		(297)		(628)
Prepaid expenses and other current assets		(82)		(62)
Other non-current assets		4		39
Accounts payable		458		(2,328)
Accrued compensation		(2,368)		(1,772)
Other accrued expenses		2,438		944
Refund liability		—		(1,769)
Operating lease liabilities		(185)		(158)
Net cash used in operating activities		(9,782)		(12,386)
Investing activities
Purchases of property, plant and equipment		—		(52)
Net cash provided by (used in) investing activities		—		(52)
Financing activities
Principal payments on finance leases		(82)		(226)
Principal payments on long-term debt		(10,500)		(10,353)
Proceeds from issuance of long-term debt with warrants, net		19,767		10,410
Receipts from litigation financing		276		927
Proceeds from issuance of common stock under stock incentive plans		621		1
Net cash provided by financing activities		10,082		759
Net increase (decrease) in cash and cash equivalents		300		(11,679)
Cash and cash equivalents, beginning of period		57,494		65,316
Cash and cash equivalents, end of period	$	57,794	$	53,637
Supplemental disclosure of cash flow information
Cash paid for interest	$	261	$	87
Cash paid for operating lease liabilities	$	309	$	300
Reduction of lease liability and right-of-use asset from lease modification	$	—	$	39
Non-cash increase in indemnification asset through accounts payable	$	138	$	1,598

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

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Liquidia Corporation

Notes to Condensed Consolidated Financial Statements (unaudited)

(tabular dollars in thousands)

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 primarily 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 YUTREPIA upon final 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’s lead product candidate, for which it holds worldwide commercial rights, is YUTREPIA for the treatment of PAH. YUTREPIA 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’s New Drug Application (NDA) for YUTREPIA was tentatively approved by the FDA in November 2021.

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 current or future 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. 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 Entity’s 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 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 $15.9. million for the three months ended March 31, 2022 and the Company had an accumulated deficit of $325.5 million as of

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March 31, 2022. The Company expects to continue to generate operating losses for the foreseeable future and anticipates that cash and cash equivalents will be sufficient to fund operations and remain in compliance with financial covenants into 2024.

Therefore, as of the issuance date of the condensed consolidated financial statements for the three months ended March 31, 2022, the Company expects that its cash and cash equivalents will be sufficient to fund its operating expenses and capital expenditure requirements for at least twelve months from the issuance date of these unaudited interim condensed consolidated financial statements.

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, 2022 and for the three months ended March 31, 2022 and 2021 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, 2022 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2022. 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. Certain amounts have been reclassified from the prior year presentation to conform to current presentation. 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, 2021, which are included in the Company’s 2021 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, 2022 compared with the significant accounting policies disclosed in Note 2 of the consolidated financial statements for the years ended December 31, 2021 and 2020, which are included in the Company’s 2021 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.

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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, 2022 were $57.8 million and included cash investments in money market funds of $56.8 million. Cash as of December 31, 2021 was $57.5 million and included $56.5 million cash equivalents.

Accounts Receivable

Accounts receivable are stated at net realizable value including an allowance for credit losses as of each balance sheet date, if applicable. As of March 31, 2022 and December 31, 2021, the Company has not recorded an allowance for credit losses.

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. 100% of the Company’s cash and cash equivalents are held with Silicon Valley Bank (“SVB”).

For the three months ended March 31, 2022, one customer accounted for 98% of revenue and 98% of accounts receivable.

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 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. For example, significant and unanticipated changes or our inability to obtain or maintain regulatory approvals for our product candidates, including the NDA for YUTREPIA, could trigger testing of our goodwill for impairment at an interim date. 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.

Per ASC 350 Intangibles Goodwill and Other, 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

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measuring the goodwill impairment loss, if applicable. The Company completed its last annual impairment test as of July 1, 2021 and concluded that no impairments have occurred.

As of March 31, 2022, the Company concluded there were no events or changes in circumstances that indicated that the carrying amount of goodwill was not recoverable.

Revenue Recognition

The Company recognizes revenue in accordance with ASC 606 Revenue from Contracts with Customers (“ASC 606”). The core principle of ASC 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 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 over the requisite service period or the vesting period of the respective award (see Note 6).

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.

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Diluted net loss per share is calculated by adjusting weighted average shares outstanding for the dilutive effect of common stock equivalents outstanding for the period, determined using the treasury-stock method. Due to their anti-dilutive effect, the calculation of diluted net loss per share for the three months ended March 31, 2022 and 2021 does not include the following common stock equivalent shares:

	Three Months Ended
	March 31,
	2022	2021
Stock Options	7,054,395	4,776,022
Restricted Stock Units	365,382	313,099
Warrants	430,556	73,334
Total	7,850,333	5,162,455

For the three months ended March 31, 2022 and 2021, 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 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. Effective January 1, 2022, the Company adopted ASU 2020-06, which had no impact on the Company’s financial statements and related disclosures.

In May 2021, the FASB issued ASU 2021-04, Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. This guidance clarifies and reduces diversity in the accounting for modifications or exchanges of freestanding equity-classified written call options (for example warrants) that remain equity classified after modification or exchange. Effective January 1, 2022, the Company adopted ASU 2021-04, which had no impact on the Company’s financial statements and related disclosures.

Fair Value 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 — Inputs other than quoted prices included in active markets 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.

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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 assets and liabilities measured at fair value as of March 31, 2022 and December 31, 2021:

	Quoted		Significant
	Prices in		Other		Significant
	Active		Observable		Unobservable
	Markets		Inputs		Inputs		Carrying
March 31, 2022	(Level 1)		(Level 2)		(Level 3)		Value
Assets
Money market mutual funds	$	56,794	$	—	$	—	$	56,794
Liabilities
A&R Silicon Valley Bank term loan	$	—	$	19,293	$	—	$	19,476
Quarterly Bonus (see Note 6)		—		—		56		56
Total	$	—	$	19,293	$	56	$	19,532

	Quoted		Significant
	Prices in		Other		Significant
	Active		Observable		Unobservable
	Markets		Inputs		Inputs		Carrying
December 31, 2021	(Level 1)		(Level 2)		(Level 3)		Value
Assets
Money market mutual funds	$	56,494	$	—	$	—	$	56,494
Liabilities
Silicon Valley Bank term loan	$	—	$	10,021	$	—	$	10,410

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 the Quarterly Bonus (as described in Note 6) is measured in accordance with ASC 820, Financial Instruments. The fair value is determined based on the present value of the expected payments using an interest rate consistent with the company’s current estimated cost of debt.

The fair value of debt is measured in accordance with ASC 820, Financial Instruments. The fair value is determined based on the remaining years to maturity, interest and principal payments, as well as an interest rate consistent with the Company’s current estimated cost of debt.

3. Contract Acquisition Costs, Intangible Asset, and Goodwill

Contract acquisition costs and the Intangible asset consist of the total value assigned to the Promotion Agreement recorded in connection with the Merger Transaction (See Note 5). The Company is amortizing the value of the 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 November 18, 2020 through May 2027, the termination date of the Promotion Agreement (see Note 2-Revenue Recognition for 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, 2022 and 2021, the Company recorded total amortization of $0.4 million and $0.8 million from the contract acquisition costs as a reduction in revenue, respectively. During the three months ended March 31, 2022 and 2021, the Company recorded total amortization of $0.2 million and $0.3 million from the intangible asset as cost of revenue, respectively.

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The Company recorded goodwill in the Merger Transaction of $3.9 million 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-Goodwill for accounting policy). None of the goodwill recognized is expected to be deductible for income tax purposes.

4. Indemnification Asset with Related Party and Litigation Finance Payable

On June 3, 2020, 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 (“Smiths Medical”) in November 2020, were pursuing litigation against Smiths Medical (collectively, the “RareGen Litigation”). 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.

On November 17, 2020, 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 9.3% of Liquidia Corporation Common Stock as of April 22, 2022) who is also a member of the Company’s Board of Directors.

Under the terms of the Indemnification Agreement, PBM now controls the litigation, with Liquidia PAH’s primary 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 RareGen 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.

The Indemnification Asset is increased as the Company records third party legal and litigation expenses related to the United Therapeutics and Smiths Medical litigation.

As of March 31, 2022 and December 31, 2021, the Indemnification Asset and Litigation Finance Payable were classified as long-term assets and liabilities, respectively as it is considered unlikely that the RareGen Litigation would conclude prior to March 31, 2023.

5. Stockholders’ Equity

Authorized Capital

As of March 31, 2022, 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.

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Issuance of Common Stock on March 31, 2022 from Merger Transaction

On November 18, 2020 (the “Closing Date”), the Company completed the acquisition of RareGen as 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 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) continued 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. On March 31, 2022, an aggregate of 616,666 shares of Liquidia Corporation Common Stock, which were held back on the Closing Date, were issued to RareGen members.

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 YUTREPIA and the subcutaneous administration of Treprostinil Injection, for growth initiatives, and for general corporate purposes.

Warrants

During the three months ended March 31, 2022 and 2021 no warrants to purchase shares of common stock were exercised.

As of March 31, 2022 outstanding warrants consisted of the following:

	Number of
	warrants	Exercise Price		Expiration Date
A&R SVB Warrant - Initial Tranche (see Note 12)	250,000	$	5.14	January 6, 2032
SVB Warrant - Initial Tranche (see Note 12)	100,000	$	3.05	February 26, 2031
SVB Warrant - Term B and Term C Tranches (see Note 12)	100,000	$	n/a	February 26, 2031
Other warrants	65,572	$	0.02	December 31, 2026

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

	Number of
	warrants	Exercise Price		Expiration Date
SVB Warrant - Initial Tranche (see Note 12)	100,000	$	3.05	February 26, 2031
SVB Warrant - Term B and Term C Tranches (see Note 12)	100,000	$	n/a	February 26, 2031
Other warrants	65,572	$	0.02	December 31, 2026

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6. Stock-Based Compensation

2020 Long-Term Incentive Plan

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, 2022, the number of shares of common stock available for issuance under the 2020 Plan automatically increased by 2,091,509 shares pursuant to the Evergreen Provision. As of March 31, 2022, the Company had 189,008 shares available to issue under the 2020 Plan.

The 2020 Plan replaced the Company’s 2018 Long-Term Incentive Plan (the “2018 Plan”). 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 expiration of awards outstanding under the 2018, 2016 and 2004 Plans will not be available for grant under the 2020 Plan. As of March 31, 2022, the Company had reserved for issuance 682,687 shares of common stock under the 2018 Plan, 135,574 shares of common stock under the 2016 Plan and 93,467 shares of common stock under the 2004 Plan, representing the remaining outstanding equity awards granted under the 2018, 2016 and 2004 Plans.

2022 Inducement Plan

On January 25, 2022, the Board approved the adoption of the Company’s 2022 Inducement Plan (the “2022 Inducement Plan”). The 2022 Inducement Plan was recommended for approval by the Compensation Committee of the Board (the “Compensation Committee”), and subsequently approved and adopted by the Board without stockholder approval pursuant to Rule 5635(c)(4) of the rules and regulations of The Nasdaq Stock Market, LLC (the “Nasdaq Listing Rules”).

The Company reserved 310,000 shares of the Company's common stock for issuance pursuant to equity awards granted under the 2022 Inducement Plan, and the 2022 Inducement Plan will be administered by the Compensation Committee. In accordance with Rule 5635(c)(4) of the Nasdaq Listing Rules, equity awards under the 2022 Inducement Plan may only be made to an employee who has not previously been an employee or member of the Board (or any subsidiary of the Company), or following a bona fide period of non-employment by the Company (or a subsidiary of the Company), if he or she is granted such equity awards in connection with his or her commencement of employment with the Company or a subsidiary and such grant is an inducement material to his or her entering into employment with the Company or such subsidiary.

Employee Stock Purchase Plan

In November 2020, stockholders approved the Liquidia Corporation 2020 Employee Stock Purchase Plan (the “2020 ESPP”). As of March 31, 2022, a total of 594,983 shares of the Company’s common stock are reserved for issuance under the 2020 ESPP. The 2020 ESPP allows eligible employees to purchase shares of the Company’s common stock at a discount through payroll deductions, subject to plan limitations. 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 lesser of the fair market value of the Company’s common stock on the first and last trading day of the offering period.

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CEO Options

During December 2020, the Company issued a stock option grant to its then new Chief Executive Officer, Damian deGoa, 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 vested as follows: 500,000 shares, or 25%, vested on November 5, 2021 upon achievement of the acceleration event related to the Company’s receipt of tentative approval by the FDA of the Company’s New Drug Application for YUTREPIA; 375,000 shares, or 25% of the then-unvested portion of the CEO Option, vested on November 11, 2021 upon achievement of the acceleration event related to the commercial availability of the subcutaneous Treprostinil product with cartridge supplies sufficient to support the market for one year; and 500,000 shares, or 25%, vested on December 14, 2021, the first anniversary of the grant date; with the balance of the CEO Option to vest and become exercisable over the following thirty-six months. The CEO Option ceased vesting upon the termination of Mr. deGoa’s employment on January 31, 2022, however, it will remain exercisable so long as Mr. deGoa remains a director of the Company in accordance with his Separation Agreement. This change to vesting terms was treated as a modification of the original award resulting in a stock-based compensation charge of $2.9 million during the three months ended March 31, 2022.

Quarterly Bonus and Second Tranche Options

On January 3, 2022 (the “Jeffs Effective Date”), Roger A. Jeffs, Ph.D. was appointed as the Company’s Chief Executive Officer. In connection with Dr. Jeffs’ appointment, on the Jeffs Effective Date, the Company and Dr. Jeffs entered into an executive employment agreement (the “Jeffs Employment Agreement”) pursuant to which Dr. Jeffs is entitled to a quarterly cash bonus, beginning in 2023 through the end of the last calendar quarter in 2025, equal in the aggregate to the difference (only if positive) between the per share closing price of a share of the Company’s common stock on the date which the Second Tranche Option (as defined below) is granted minus the per share closing price of Common Stock on the Jeffs Effective Date multiplied by 931,745 (the “Quarterly Bonus”). The Company has concluded that the Quarterly Bonus is a liability classified cash-settled stock appreciation right under ASC 718-10-25-11 that will be expensed over the service period. As of March 31, 2022 the fair value of the Quarterly Bonus was estimated to be $0.9 million, and during the three months ended March 31, 2022 the Company recorded a stock-based compensation charge of $56,000 related to the Quarterly Bonus.

Additionally, subject to an increase in the shares available for issuance under the 2020 Plan resulting either from stockholder approval or the 2020 Plan’s Evergreen Provision, Dr. Jeffs is also entitled to a grant of 931,745 nonstatutory stock options (the “Second Tranche Option”), with an exercise price per share equal to the closing price of a share of common stock on the date of grant. The Second Tranche Option shall (i) be granted under and subject to the terms of 2020 Plan and a form of nonstatutory stock option grant agreement, and (ii) be subject to the following vesting schedule: 25% of the grant will become vested and exercisable on the first anniversary of the Jeffs Effective Date, and the remaining portion of the grant will become vested and exercisable, as applicable, in equal monthly installments over the following thirty-six (36) months, subject to Dr. Jeffs’ continuous employment with the Company on each such vesting date. Notwithstanding the foregoing, in the event of a Change in Control (as defined in the 2020 Plan) 100% of the unvested portion of the Options shall become vested and exercisable as of the closing date of such Change in Control, provided that Dr. Jeffs is actively employed with the Company on such date.

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.

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The Company recorded the following stock-based compensation expense:

	Three Months Ended
	March 31,
By Expense Category:	2022		2021
Research and development	$	383	$	251
General and administrative		3,802		494
Total stock-based compensation expense	$	4,185	$	745

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, 2022
			Weighted
			Average
			Remaining
			Recognition
	Unamortized		Period
	Expense		(Years)
Stock options	$	13,720	3.3
Restricted stock units	$	2,357	3.3

Fair Value of Stock Options Granted and Purchase Rights Issued under the ESPP

The Company uses the Black-Scholes option-pricing model to determine the fair value of stock options granted and purchase rights issued under the ESPP.

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.

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 assumptions used for estimating the fair value of stock options granted under the Black-Scholes option-pricing model:

	Three Months Ended
	March 31,
	2022	2021
Expected dividend yield	—	—
Risk-free interest rate	1.46% - 2.34%	0.62% - 1.67%
Expected volatility	90% - 92%	93% - 94%
Expected life (years)	6.0 - 6.1	5.2 - 6.1

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The weighted average fair value for options granted during the three months ended March 31, 2022 and 2021 was $4.37 and $2.09 per share, respectively.

The following table summarizes the assumptions used for estimating the fair value of purchase rights granted to employees under the ESPP under the Black-Scholes option-pricing model during the three months ended March 31, 2022:

Expected dividend yield	—
Risk-free interest rate	0.69%
Expected volatility	80%
Expected life (years)	0.50

The following table summarizes the Company’s stock option activity during the three months ended March 31, 2022:

				Weighted
		Weighted		Average
		Average		Contractual	Aggregate
	Number of	Exercise		Term	Intrinsic
	Shares	Price		(in years)	Value
Outstanding as of December 31, 2021	5,598,009	$	4.19
Granted	2,457,702		5.46
Exercised	(143,297)		4.15
Cancelled	(942,486)		5.66
Outstanding as of March 31, 2022	6,969,928	$	4.44	9.0	$	20,733
Exercisable as of March 31, 2022	2,890,891	$	4.08	8.4	$	10,233
Vested and expected to vest as of March 31, 2022	6,095,627	$	4.40	8.9	$	18,576

The aggregate intrinsic value of stock options in the table above represents the difference between the $7.18 closing price of the Company’s common stock as of March 31, 2022 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, 2022, the Board of Directors approved grants of an aggregate of 409,569 time-based RSUs to employees. 63,230 of these RSUs were issued to Dr. Jeffs pursuant to the Jeffs Employment Agreement and vest quarterly through January 2023. The remaining 346,339 RSUs vest over a four-year period similar to stock options granted to employees.

A summary of nonvested RSU awards outstanding as of March 31, 2022 and changes during the three months ended March 31, 2022 is as follows:

		Weighted
		Average
		Grant-Date
	Number of	Fair Value
	RSUs	(per RSU)
Nonvested as of December 31, 2021	15,204	$	3.31
Granted	409,569		6.08
Vested	(1,690)		3.31
Nonvested as of March 31, 2022	423,083	$	5.99

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7. 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, including YUTREPIA. 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.

8. 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. See Note 2 for Revenue Recognition accounting policy.

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”). The Company expects to refund certain amounts to Sandoz through a reduction of the cash received from future Net Profits generated under the Promotion Agreement. As of March 31, 2022, a $0.5 million refund liability is offset against accounts receivable from Sandoz.

The Company derived approximately 98% of its revenue from the Promotion Agreement during the three months ended March 31, 2022.

9. Property, Plant and Equipment

Property, plant and equipment consisted of the following:

	March 31,		December 31,
	2022		2021
Lab and build-to-suit equipment	$	6,600	$	6,600
Office equipment		19		19
Furniture and fixtures		177		177
Computer equipment		347		347
Leasehold improvements		11,457		11,457
Total property, plant and equipment		18,600		18,600
Accumulated depreciation and amortization		(13,986)		(13,583)
Property, plant and equipment, net	$	4,614	$	5,017

The Company recorded depreciation and amortization expense of $0.4 million and $0.5 million for the three months ended March 31, 2022 and 2021, respectively.

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10. Income Taxes

The Company did not record a federal or state income tax expense or benefit during the three months ended March 31, 2022 as a result of the establishment of a full valuation allowance against the Company’s net deferred tax assets.

11. Leases, Commitments and Contingencies

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 ASC 842 Leases, 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 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	2022		2021
Operating lease cost	General and administrative	$	195	$	195
Finance lease cost:
Amortization of lease assets	General and administrative		38		144
Interest on lease liabilities	Interest expense		10		5
Total Lease Cost		$	243	$	344

The weighted average remaining lease term and discount rates as of March 31, 2022 were as follows:

Weighted average remaining lease term (years):
Operating leases	4.6
Finance leases	2.3
Weighted average discount rate:
Operating leases	10.3	%
Finance leases	6.5	%

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The discount rate for 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, 2022 were as follows:

	Operating		Finance
Year ending December 31:	Leases		Leases		Total
2022	$	934	$	251	$	1,185
2023		1,283		195		1,478
2024		1,317		115		1,432
2025		1,356		64		1,420
2026		1,158		—		1,158
Total minimum lease payments		6,048		625		6,673
Less: Interest		(1,226)		(44)		(1,270)
Present value of lease liabilities	$	4,822	$	581	$	5,403

Commitments and Contingencies

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 milestones and royalties, totaling no more than $1,500,000, none of which has been earned as of March 31, 2022

The Company enters into contracts in the normal course of business with contract service providers to assist in the performance of research and development and manufacturing activities. Subject to required notice periods and obligations under binding purchase orders, the Company can elect to discontinue the work under these agreements at any time. In addition, the Company has entered into a multi-year agreement with LGM Pharma, LLC (“LGM”) to produce active pharmaceutical ingredients for YUTREPIA.  The Company is required to provide rolling forecasts, a portion of which will be considered a binding, firm order, subject to an annual minimum purchase commitment of $3.1 million for the term of the agreement. The agreement expires five years from the first marketing authorization approval of YUTREPIA. This minimum commitment was waived for the year ending December 31, 2022.

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.

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.

12. Long-Term Debt

Long-term debt consisted of the following as of March 31, 2022 and December 31, 2021:

		March 31,		December 31,
	Maturity Date	2022		2021
A&R Silicon Valley Bank term loan	December 1, 2025	$	19,476	$	—
Silicon Valley Bank term loan	September 1, 2024		—		10,410
Long-term debt		$	19,476	$	10,410

Amended and Restated Loan and Security Agreement dated January 7, 2022

On January 7, 2022 (the “A&R SVB LSA Effective Date”), the Company entered into an Amended and Restated Loan and Security Agreement with SVB and SVB Innovation Credit Fund VIII, L.P. (“Innovation”) (the “A&R SVB LSA”). The A&R SVB LSA established a term loan facility in the aggregate principal amount of up to $40.0 million. Under the terms of the A&R SVB LSA, SVB and Innovation will make loans available in three tranches, with $20.0 million from

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the first tranche funded on the A&R SVB LSA Effective Date. The Company used $10.5 million of the first tranche proceeds to satisfy its existing obligations under the SVB LSA (see below) and such obligations are considered fully repaid and terminated as of that date. The Company accounted for the repayment of the SVB LSA in accordance with ASC 405-20, Extinguishments of Liabilities, which resulted in a loss on extinguishment during the three months ended March 31, 2022 of $1.0 million.

The first tranche also provides the option of drawing an additional $5.0 million at the Company’s discretion through December 31, 2022. A second tranche of $7.5 million is available to fund immediately upon receipt of final and unconditional approval for YUTREPIA by December 31, 2022. The third tranche of $7.5 million will be available through August 31, 2023, upon generating trailing six-month net product sales of YUTREPIA of $27.5 million by June 30, 2023. The debt facility will mature on December 1, 2025 and will consist of interest-only payments through December 31, 2023, unless the third tranche milestone is achieved, in which case interest-only payments will continue through December 31, 2024. The outstanding principal amount of the term loans shall accrue interest at a floating rate per annum equal to the greater of 7.25% and the prime rate of interest 4.0%. The SVB A&R LSA also provides for a “Final Payment Fee” of 5.0% of the aggregate original principal amount of all loans made and a payment solely to SVB of $185 thousand due on the earliest of the maturity date, the repayment of the debt in full, any optional prepayment or mandatory prepayment, or the termination of the A&R SVB LSA.

As with the prior SVB LSA, the A&R SVB LSA contains customary affirmative and negative covenants, including but not limited to certain financial covenants, protection of intellectual property rights, the disposition of certain assets, and material adverse changes.

As an inducement to enter into the A&R SVB LSA, the Company issued to each of SVB, Innovation, and Innovation Credit Fund VIII-A L.P. (“Innovation Credit”) certain warrants to purchase shares of the Company’s common stock pursuant to the Warrant to Purchase Stock agreements by and between the Company and each recipient (collectively, the “A&R SVB Warrants”). The respective A&R SVB Warrants provided (i) SVB with the initial right to obtain 125,000 shares of the Company’s stock at an exercise price of $5.14 per share, and there is an opportunity for SVB to obtain up to 50,000 more warrants based on certain loans that may be made under the A&R SVB LSA, (ii) Innovation with the initial right to obtain 62,500 shares of the Company’s stock at an exercise price of $5.14 a share, and with an opportunity for Innovation to obtain up to 25,000 more warrants based on certain loans that may be made under the Loan Agreement, and (iii) Innovation Credit with the initial right to obtain 62,500 shares of the Company’s stock at an exercise price of $5.14 per share, and with an opportunity for Innovation Credit to obtain up to 25,000 more warrants based on certain loans that may be made under the A&R SVB LSA. The A&R SVB Warrants provide an option for a cashless exercise.

In accordance with ASC 470, Debt, the value of the A&R SVB Warrants and A&R SVB LSA was allocated using a relative fair value allocation. The fair value of the A&R SVB Warrants was determined to be $1.3 million and included in additional paid-in-capital of which $0.7 million was recognized as a component of the loss on extinguishment and $0.6 million as a debt discount. $19.4 million was allocated to the A&R SVB LSA. In addition, the Company incurred fees of less than $0.1 million, which were recorded as a debt issuance costs. The debt discount and debt issuance costs are being amortized to interest expense and the Final Payment Fee is being accreted using the effective interest method over the term of the A&R SVB LSA.

The Company evaluated the features of the A&R SVB LSA and A&R SVB Warrants in accordance with ASC 480, Distinguishing Liabilities from Equity and ASC 815, Derivatives and Hedging. The Company determined that the A&R SVB LSA and A&R SVB Warrants did not contain any features that would qualify as a derivative or embedded derivative. In addition, the Company determined that the A&R SVB Warrants should be classified as equity. The value of the A&R SVB Warrants is included in Additional Paid-in-Capital in the Company’s condensed consolidated balance sheet as of March 31, 2022. The estimated fair value of the SVB Warrant was calculated using the Black-Scholes Option Pricing Model based on the following inputs:

Expected dividend yield	—
Risk-free interest rate	1.76%
Expected volatility	97.2%
Expected life (years)	10.0

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Loan and Security Agreement dated February 26, 2021

The Company entered into a Loan and Security Agreement with SVB on February 26, 2021 (the “Effective Date”) and a First Loan Modification Agreement with SVB on August 26, 2021 (the “SVB LSA”). The SVB LSA established a term loan facility in the aggregate principal amount of up to $20.5 million. $10.5 million was funded on March 1, 2021 and was used to satisfy the Company’s existing obligations, consisting of approximately $9.4 million in outstanding principal and interest with Pacific Western Bank, 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 loan obligation with Pacific Western Bank in accordance with ASC 405-20, Extinguishments of Liabilities, which resulted in a loss on extinguishment during the three months ended March 31, 2021 of less than $0.1 million.

In connection with the Loan Agreement, the Company issued to SVB a warrant, dated as of the Effective Date to purchase 200,000 shares of common stock (the “SVB Warrant”), of which 100,000 shares vested on the Effective Date, with an exercise price per share equal to $3.05 (the “Initial Tranche”). The remaining 100,000 shares were to become exercisable and priced if additional amounts were funded under the SVB LSA (the “Term B and C Tranches”).

The Company evaluated the features of the SVB LSA 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, 2022. 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

Scheduled annual maturities of long-term debt as of March 31, 2022 are as follows:

Year ending December 31:
2022	$	—
2023		—
2024		10,000
2025		10,000
Thereafter