LQDA 7.30.26

I think it's important to think back to the Fall because that's the important part. First, if you had told me that the stock would be trading in the mid-80s without a ruling, I would’ve been extremely surprised by that outcome. So then the question is, what has happened that has in fact allowed the stock to trade here?

I'd point to the numbers themselves. Last quarter they said they essentially did $2 in EPS annualized. So I think right out of the gate the profitability is strong. On the incrementals in terms of patient scripts, they've done pretty well, certainly better than we had anticipated. From a market share perspective, in the Fall, our base case was that PAH (pulmonary arterial hypertension) would be 50/50 between UTHR and Liquidia. As it stands today, I think it's not unreasonable to think that it's closer to 70/30 in Liquidia's favor. So that's one element that has pushed the stock higher.

The second is, I think most people had viewed it as primarily PAH, and that the PH-ILD (pulmonary hypertension associated with interstitial lung disease) would be subject to litigation. It was even a question as to whether they'd be a viable solution for PH-ILD. It appears they're doing well there as well.

I would also say that UTHR has a trial for lung fibrosis, applying Tyvaso DPI to lung fibrosis. I think eventually a lot of those patients may end up benefiting from Yutrepia because of the titrability. I think that's the key differentiator. So I'd say United Therapeutics is in many respects creating TAM expansion for Liquidia as a way of surviving their own market. Because of that, Liquidia's stock is responding favorably.

Going back to your point about having no decision on the trial, I would say an outright loss by Liquidia seems very unlikely at this particular juncture. I don't know if you saw last week's request by Judge Andrews, where he requested clarification on discrepancies from UTHR and their legal team. They've since responded that it was a clerical error or something to that effect. I think that actually shifts the probability into Liquidia's favor. If you had said that the base case was a royalty three months ago, I think you're increasingly taking that away. And you're right, the market is kind of pricing that in.

So a few things to break down. On the $2 billion peak, I think that number is probably low. If you take PAH alone, that's probably a $4 billion addressable market. And if you take PH-ILD, which, by the way, is underdiagnosed, that adds a few billion. Liquidia's own internal peak, well, they've communicated it externally, and their own peak number I think is north of 2. I think it's probably closer to 3 or 4.

I'd say the other thing to think about is L606 and the conversion away from orals and other forms of treprostinil. If you were looking at the inhaled market alone, I think $2 billion is a number. But if you look at TAM expansion and conversion away from things like orals, I think your number is a little bit low. So that's probably the first thing.

On TPIP, though, I would look at the difference between mean and median patient improvement. I think the data for Insmed TPIP specifically, because let's actually step it back a little bit. The way they do these trials is they take a patient, they give them a drug, and then they ask them to walk. And then there's the question of how much more did you walk? Unfortunately, given how severely ill these patients are, it's not the greatest data set. If one patient has a good day, then they can walk faster. If another patient doesn't have a good day, then they may not walk further. So I think that's one thing to parse on the Insmed and the TPIP data. Look at mean versus median, and I think the data there is not the best.

The other thing to consider is TPIP comes much closer to L606. At that point, Liquidia will have been on the market for a while with Yutrepia. You will have had doctor adoption. And keep in mind, there are now some studies going on on the synergistic benefits of Winrevair and Yutrepia. I think that's something to consider.

Speaking of Winrevair and Yutrepia, I believe the CEO of Merck (MRK) was at Morgan Stanley (MS), and they were talking about acquisition candidates. Assuming the legal overhang goes away, is this an asset that would be interesting to them? If you're trying to make a short case on the basis that the legal tailwind is priced in and that you're at or near peak, I think the two things that are going to be headwinds to that thesis are, first, the EPS growth trajectory into this coming quarter, which we'll get some color on when United Therapeutics actually reports. I think they go first. And then when Liquidia reports, I think that's going to be your first negative. And then the second negative is that this is a prime acquisition target, and the space has been seeing more M&A.

Well, let's put it this way. I think we have in our numbers something like, in a bullish scenario, we think that they can do $8 in EPS somewhere between 2028 and 2029. It's not inconceivable. So the reality is, apply whatever multiple that you want to that, and that gives you your upside. Now the reality is it's more or less a single asset. But there are single assets that have done well even when there are looming competitor threats. Single-asset biotech is not necessarily a bad thing.

From a bullish standpoint, I've seen numbers anywhere from 100 to 140. We're probably on the lower end of that. Anybody that's bullish on the fundamentals of the company is probably long already. I think that you may get incremental buyers if and when the legal overhang goes away. I think that's what's limiting certain investors from participating. And I don't have the updated short interest, but it is still a relatively well-shorted stock.

Exactly. So to make an incremental short case from here to make sense, you would need to believe that Tyvaso DPI delivers a strong quarter. And if you remember last quarter, numbers came down, and they actually missed on Tyvaso. So that's something to flag. And if you look at the growth in Tyvaso, most of it, I believe, was attributable to pricing, not actual units, right?

On Insmed, as I said, I looked at their data, and I don't think it's a threat. But obviously that's subject to interpretation, and we'll see. I think we're still a ways away from a commercial launch. In the interim, that will coincide with L606, and we'll see how that does, and we'll see whether or not, even in a TPIP world, they can convert Yutrepia to L606 effectively if between now and then you get better data on Yutrepia plus Winrevair. How the world actually evolves between now and then is something that I think is somewhat uncertain.

For now, based at least on what I've seen from TPIP, I think that Yutrepia is the best product on the market. I think that they will essentially annihilate United Therapeutics. And UTHR is a $20 billion enterprise value company. I believe that's where it's at these days. So if UTHR is $20 billion, not to be simplistic about it, but why can't the equity be $12 to $15 billion, right?

I think you're right on that. There would be a patent issue. The question for me, and I haven't looked into this deeply, is ultimately, wouldn't an IPF patient kind of morph into a PH-ILD patient potentially?

I think that's ultimately it. And to be fair, if UTHR didn't have that pipeline optionality, the stock would be a lot lower today. I think the extent of their deterioration will be telling this particular quarter. I can't remember the last time I've seen a management team dump stock as aggressively as UTHR has over the last 12 to 18 months.

Because I think if you look at the response to last week's judge note, there's this whole debate about ownership and prior ownership and when they were made aware of it. First, if he was going to yank it for a particular indication, the ruling would have come out a long time ago. He should have ruled on this certainly by the fall; everyone was expecting a ruling by the fall. In the interim, you've had a ton of patient starts. I think the adverse patient outcome by removing this on PH-ILD, particularly when we now know that Yutrepia is superior, would be significant. Some doctors are actively prescribing the drug. This would only lead to an appeal in which I believe Liquidia would have a strong case.