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8468306368629575http://fasb.org/us-gaap/2024#UsefulLifeShorterOfTermOfLeaseOrAssetUtilityMemberhttp://fasb.org/us-gaap/2024#MeasurementInputDiscountRateMember0.00http://liquidia.com/20241231#OperatingAndFinanceLeaseLiabilityCurrent http://liquidia.com/20241231#OperatingAndFinanceLeaseLiabilityNoncurrenthttp://liquidia.com/20241231#OperatingAndFinanceLeaseLiabilityCurrent http://liquidia.com/20241231#OperatingAndFinanceLeaseLiabilityNoncurrent
Item 8. Financial Statements and Supplementary Data
LIQUIDIA CORPORATION
FINANCIAL STATEMENTS
| Report of Independent Registered Public Accounting Firm (PCAOB ID: 238) | F-2 |
| Consolidated Balance Sheets as of December 31, 2024 and 2023 | F-5 |
| Consolidated Statements of Operations and Comprehensive Loss for the Years Ended December 31, 2024 and 2023 | F-6 |
| Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2024 and 2023 | F-7 |
| Consolidated Statements of Cash Flows for the Years Ended December 31, 2024 and 2023 | F-8 |
| Notes to Consolidated Financial Statements | F-9 |
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Liquidia Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Liquidia Corporation and its subsidiaries (the "Company") as of December 31, 2024 and 2023, and the related consolidated statements of operations and comprehensive loss, of stockholders' equity and of cash flows for the years then ended, including the related notes (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
Substantial Doubt About the Company's Ability to Continue as a Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has incurred recurring losses from operations since inception and expects to continue to incur operating losses and negative cash flows from operations that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
As described in Notes 2 and 13 to the consolidated financial statements, during 2023 the Company entered into a revenue interest financing agreement ("HCR Agreement") with HealthCare Royalty Partners IV, L.P. (HCR) and HealthCare Royalty Management, LLC, for an aggregate investment amount of up to $100.0 million in four tranches. During 2024, the Company entered into the Fourth and Fifth Amendments to the HCR Agreement pursuant to which HCR funded an additional $25.0 million from the second tranche on January 5, 2024 and an additional $32.5 million from the second tranche on September 12, 2024, and eliminated the third and fourth tranches. Amendments are assessed by management to determine appropriate treatment as troubled debt restructurings, extinguishments or modifications. Subsequent to the initial issuance of the December 31, 2024 financial statements, management reevaluated the accounting treatment for the Fourth and Fifth amendments to the HCR Agreement. Management had initially concluded that the amendments constituted extinguishments and after reevaluating the accounting treatment have revised their conclusions and determined the amendments to be modifications. As a result, all amendments to date were treated as debt modifications for accounting purposes. Aggregate payments to HCR are capped at 175% of funded portion of the investment amount (the "Hard Cap"), plus an amount, if any, that HCR would need to receive to yield an internal rate of return of (i) 18% on the first $67.5 million funded and (ii) 16% on the next $32.5 million funded (the "IRR True-Up Payment"), unless the HCR Agreement is earlier terminated. If a change of control occurs or upon the occurrence of an event of default, HCR may accelerate payments due under the HCR Agreement up to the Hard Cap, plus the IRR True-Up Payment, plus any other obligations payable under the HCR Agreement. Management recorded the total funds received from HCR under the terms of the HCR Agreement as a liability. Cumulative fees to the lender and third parties of approximately $0.9 million are reflected as a discount on the long-term debt and is accreted over the term using the effective interest method. The HCR Agreement's initial effective interest rate was 17.3%, which decreased to 17.2% following the Third Amendment. Following the Fourth Amendment the effective interest rate was 18.0% and was 16.0% following the Fifth Amendment. Management uses the contractual payment schedule to determine the interest expense to record to accrete the liability to the amount ultimately due. The current and long-term portions of the HCR Agreement payable recognized as of December 31, 2024, were $18.0 million and $95.3 million, respectively.
The principal considerations for our determination that performing procedures relating to long-term debt is a critical audit matter are (i) the significant judgment by management when determining the appropriate accounting treatment for the amendments; and (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating audit evidence related to management's determination of the accounting treatment of the amendments.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included, among others, (i) reading the HCR Agreement and related amendments; (ii) evaluating the appropriateness of the classification of the debt; and (iii) evaluating management's revised assessment related to determining the accounting treatment of the amendments. Evaluating management's revised assessment related to determining the accounting treatment of the amendments included (i) evaluating the impact of the contractual terms of the amendments; (ii) assessing whether the Company's creditworthiness had deteriorated since the debt was issued; (iii) reevaluating whether the change in debt terms is considered substantially different by calculating the present value of the cash flows under the terms of the amendments and comparing it to the present value of the remaining cash flows under the terms of the original HCR Agreement; (iv) considering whether the conclusions reached by management after the reevaluation were consistent with the terms of the arrangements and evidence obtained in other areas of the audit; (v) evaluating the presentation of the related financial
statement disclosures; and (vi) evaluating the adjustments to revise the previously issued financial statements to account for the Fourth and Fifth amendments to the HCR Agreement as modifications.
/s/ PricewaterhouseCoopers LLP
Raleigh, North Carolina
March 19, 2025, except for the effects of the revision discussed in Note 2 to the consolidated financial statements and the critical audit matter related to long-term debt, as to which the date is May 8, 2025
We have served as the Company's auditor since 2014.
Liquidia Corporation
Consolidated Balance Sheets
(in thousands, except share and per share data)
| December 31, | December 31, | ||||||
| 2024 | 2023 | ||||||
| Assets | |||||||
| Current assets: | |||||||
| Cash and cash equivalents | $ | 176,479 | $ | 83,679 | |||
| Accounts receivable, net | 2,719 | 4,061 | |||||
| Inventory | 241 | - | |||||
| Prepaid expenses and other current assets | 5,666 | 2,159 | |||||
| Total current assets | 185,105 | 89,899 | |||||
| Property, plant and equipment, net | 8,298 | 4,480 | |||||
| Operating lease right-of-use assets, net | 4,187 | 1,704 | |||||
| Indemnification asset, related party | 7,460 | 6,707 | |||||
| Contract acquisition costs, net | 7,286 | 7,922 | |||||
| Intangible asset, net | 3,156 | 3,430 | |||||
| Goodwill | 3,903 | 3,903 | |||||
| Other assets | 10,918 | 287 | |||||
| Total assets | $ | 230,313 | $ | 118,332 | |||
| Liabilities and stockholders' equity | |||||||
| Current liabilities: | |||||||
| Accounts payable | $ | 4,689 | $ | 1,396 | |||
| Accrued expenses and other current liabilities | 18,659 | 13,400 | |||||
| Long-term debt, current | 18,016 | 2,615 | |||||
| Operating and finance lease liabilities, current | 417 | 1,139 | |||||
| Total current liabilities | 41,781 | 18,550 | |||||
| Litigation finance payable | 7,300 | 6,707 | |||||
| Long-term debt, noncurrent | 95,268 | 43,418 | |||||
| Operating and finance lease liabilities, noncurrent | 6,586 | 2,364 | |||||
| Total liabilities | 150,935 | 71,039 | |||||
| Commitments and contingencies (Note 15) | |||||||
| Stockholders' equity: | |||||||
| Preferred stock - 10,000,000 shares authorized, none outstanding | - | - | |||||
| Common stock - $ 0.001 par value, 115,000,000 and 100,000,000 shares authorized as of December 31, 2024 and December 31, 2023, respectively, 84,683,063 and 68,629,575 shares issued and outstanding as of December 31, 2024 and December 31, 2023, respectively | 85 | 69 | |||||
| Additional paid-in capital | 636,682 | 476,322 | |||||
| Accumulated deficit | ( 557,389 ) | ( 429,098 ) | |||||
| Total stockholders' equity | 79,378 | 47,293 | |||||
| Total liabilities and stockholders' equity | $ | 230,313 | $ | 118,332 |
The accompanying notes are an integral part of these consolidated financial statements.
Liquidia Corporation
Consolidated Statements of Operations and Comprehensive Loss
(in thousands, except share and per share data)
| Year Ended | ||||||
| Year Ended December 31, | ||||||
| 2024 | 2023 | |||||
| Revenue | $ | 13,996 | $ | 17,488 | ||
| Costs and expenses: | ||||||
| Cost of revenue | 5,879 | 2,888 | ||||
| Research and development | 47,842 | 43,242 | ||||
| General and administrative | 81,569 | 44,742 | ||||
| Total costs and expenses | 135,290 | 90,872 | ||||
| Loss from operations | ( 121,294 ) | ( 73,384 ) | ||||
| Other income (expense): | ||||||
| Interest income | 7,654 | 3,466 | ||||
| Interest expense | ( 14,651 ) | ( 6,273 ) | ||||
| Loss on extinguishment of debt | - | ( 2,311 ) | ||||
| Total other expense, net | ( 6,997 ) | ( 5,118 ) | ||||
| Net loss and comprehensive loss | $ | ( 128,291 ) | $ | ( 78,502 ) | ||
| Net loss per common share, basic and diluted | $ | ( 1.63 ) | $ | ( 1.21 ) | ||
| Weighted average common shares outstanding, basic and diluted | 78,707,503 | 64,993,476 |
The accompanying notes are an integral part of these consolidated financial statements.
Liquidia Corporation
Consolidated Statements of Stockholders' Equity
(in thousands, except share amounts)
| Common | Common | Additional | Total | |||||||||||
| Stock | Stock | Paid in | Accumulated | Stockholders' | ||||||||||
| Shares | Amount | Capital | Deficit | Equity | ||||||||||
| Balance as of December 31, 2022 | 64,517,912 | $ | 64 | $ | 440,954 | $ | ( 350,596 ) | $ | 90,422 | |||||
| Issuance of common stock upon exercise of stock options | 137,576 | - | 495 | - | 495 | |||||||||
| Issuance of common stock upon vesting of restricted stock units | 201,880 | 1 | ( 1 ) | - | - | |||||||||
| Issuance of common stock under employee stock purchase plan | 140,922 | - | 683 | - | 683 | |||||||||
| Sale of common stock, net | 3,631,285 | 4 | 24,102 | - | 24,106 | |||||||||
| Stock-based compensation | - | - | 10,089 | - | 10,089 | |||||||||
| Net loss | - | - | - | ( 78,502 ) | ( 78,502 ) | |||||||||
| Balance as of December 31, 2023 | 68,629,575 | $ | 69 | $ | 476,322 | $ | ( 429,098 ) | $ | 47,293 | |||||
| Issuance of common stock upon exercise of stock options | 380,096 | 1 | 1,770 | - | 1,771 | |||||||||
| Issuance of common stock upon vesting of restricted stock units | 725,038 | - | - | - | - | |||||||||
| Issuance of common stock under employee stock purchase plan | 172,395 | - | 1,248 | - | 1,248 | |||||||||
| Issuance of common stock upon exercise of warrants | 9,158 | - | - | - | - | |||||||||
| Sale of common stock, net | 14,766,801 | 15 | 138,536 | - | 138,551 | |||||||||
| Stock-based compensation | - | - | 18,806 | - | 18,806 | |||||||||
| Net loss | - | - | - | ( 128,291 ) | ( 128,291 ) | |||||||||
| Balance as of December 31, 2024 | 84,683,063 | $ | 85 | $ | 636,682 | $ | ( 557,389 ) | $ | 79,378 |
The accompanying notes are an integral part of these consolidated financial statements.
Liquidia Corporation
Consolidated Statements of Cash Flows
| Year Ended December 31, | ||||||
| 2024 | 2023 | |||||
| Operating activities | ||||||
| Net loss | $ | ( 128,291 ) | $ | ( 78,502 ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||
| Acquired in-process research and development | 3,500 | 10,000 | ||||
| Stock-based compensation | 18,806 | 10,089 | ||||
| Depreciation and amortization | 2,197 | 2,178 | ||||
| Non-cash lease expense | 468 | 397 | ||||
| Loss (gain) on disposal of property and equipment | 46 | ( 2 ) | ||||
| Loss on extinguishment of debt | - | 2,311 | ||||
| Accretion and non-cash interest expense | 14,644 | 6,093 | ||||
| Changes in operating assets and liabilities: | ||||||
| Accounts receivable, net | 1,342 | 956 | ||||
| Inventory | ( 241 ) | - | ||||
| Prepaid expenses and other current assets | ( 1,881 ) | ( 798 ) | ||||
| Other noncurrent assets | ( 10,631 ) | 20 | ||||
| Accounts payable | 2,330 | ( 1,152 ) | ||||
| Accrued expenses and other current liabilities | 5,259 | 7,746 | ||||
| Operating lease liabilities | ( 970 ) | ( 900 ) | ||||
| Net cash used in operating activities | ( 93,422 ) | ( 41,564 ) | ||||
| Investing activities | ||||||
| Purchase of in-process research and development | ( 3,500 ) | ( 10,000 ) | ||||
| Purchases of property, plant and equipment | ( 4,949 ) | ( 1,290 ) | ||||
| Proceeds from the sale of property, plant and equipment | 8 | 2 | ||||
| Net cash used in investing activities | ( 8,441 ) | ( 11,288 ) | ||||
| Financing activities | ||||||
| Proceeds from long-term debt, net of fees | 57,460 | 41,744 | ||||
| Payments on long-term debt | ( 4,853 ) | ( 21,654 ) | ||||
| Payments for debt prepayment and extinguishment costs | - | ( 2,190 ) | ||||
| Principal payments on finance leases | ( 107 ) | ( 181 ) | ||||
| Receipts from litigation financing | 593 | 113 | ||||
| Proceeds from sale of common stock, net of issuance costs | 138,551 | 24,238 | ||||
| Proceeds from issuance of common stock under stock incentive plans | 3,019 | 1,178 | ||||
| Net cash provided by financing activities | 194,663 | 43,248 | ||||
| Net increase (decrease) in cash and cash equivalents | 92,800 | ( 9,604 ) | ||||
| Cash and cash equivalents, beginning of period | 83,679 | 93,283 | ||||
| Cash and cash equivalents, end of period | $ | 176,479 | $ | 83,679 | ||
| Supplemental disclosure of cash flow information | ||||||
| Cash paid for interest | $ | - | $ | 360 | ||
| Cash paid for operating lease liabilities | $ | 1,322 | $ | 1,283 | ||
| Offering costs incurred, but not paid included in accrued expenses | $ | - | $ | 132 | ||
| Non-cash increase in right-of-use assets due to remeasurement of lease liabilities | $ | 4,577 | $ | - | ||
| Non-cash increase in property, plant and equipment through accounts payable | $ | 210 | $ | 239 | ||
| Non-cash increase in indemnification asset through accounts payable | $ | 753 | $ | 112 |
The accompanying notes are an integral part of these consolidated financial statements.
Liquidia Corporation
Notes to Consolidated Financial Statements
(tabular dollars in thousands)
Description of the Business
We are a biopharmaceutical company focused on the development, manufacture, and commercialization of products that address unmet patient needs, with current focus directed towards rare cardiopulmonary diseases such as pulmonary arterial hypertension ("PAH") and pulmonary hypertension associated with interstitial lung disease ("PH-ILD"). We operate through our wholly owned operating subsidiaries, Liquidia Technologies, Inc. ("Liquidia Technologies") and Liquidia PAH, LLC ("Liquidia PAH"), formerly known as RareGen, LLC ("RareGen").
We currently generate revenue pursuant to a promotion agreement between Liquidia PAH and Sandoz Inc. ("Sandoz"), dated as of August 1, 2018, as amended (the "Promotion Agreement"), sharing profit derived from the sale of Sandoz's substitutable generic treprostinil injection ("Treprostinil Injection") in the United States. Liquidia PAH has the exclusive rights to conduct commercial activities to encourage the appropriate use of Treprostinil Injection. We employ a targeted sales force calling on physicians and hospital pharmacies involved in the treatment of PAH and PH-ILD in the United States, as well as key stakeholders involved in the distribution and reimbursement of medicines to treat these patients. We established our commercial presence in the field to support Treprostinil Injection and have since expanded our presence to support the potential launch of YUTREPIA (treprostinil) inhalation powder ("YUTREPIA"), further validating our reputation as a company committed to supporting PAH and PH-ILD patients.
We conduct research, development and manufacturing of novel products by applying our subject matter expertise in cardiopulmonary diseases and our proprietary PRINT technology, a particle engineering platform, to enable precise production of uniform drug particles designed to improve the safety, efficacy and performance of a wide range of therapies. Through development of our own products and research with third parties, we have experience applying PRINT across multiple routes of administration and drug payloads including inhaled therapies, vaccines, biologics, nucleic acids and ophthalmic implants, among others.
Our lead product candidate is YUTREPIA for the treatment of PAH and PH-ILD. YUTREPIA is an inhaled dry powder formulation of treprostinil designed with PRINT to improve the therapeutic profile of treprostinil by enhancing deep lung delivery while using a convenient, low effort dry-powder inhaler ("DPI") and by achieving higher dose levels than the labeled doses of current inhaled therapies. On August 16, 2024, the United States Food and Drug Administration (the "FDA") (i) granted tentative approval for our New Drug Application ("NDA") for YUTREPIA for the treatment of PAH and PH-ILD and (ii) simultaneously determined that Tyvaso DPI, approved on May 23, 2022, qualifies for a three-year New Clinical Investigation exclusivity for the chronic use of dry powder formulations of treprostinil for the approved indications. As a result, final approval of YUTREPIA for PAH and PH-ILD is delayed until after expiry of the three-year regulatory exclusivity for Tyvaso DPI on May 23, 2025.
We are also developing L606, an investigational, liposomal formulation of treprostinil administered twice-daily with a short-duration next-generation nebulizer, which we licensed from Pharmosa Biopharm Inc. ("Pharmosa"). L606 is currently being evaluated in an open-label study in the United States for treatment of PAH and PH-ILD with a planned pivotal study for the treatment of PH-ILD.
Risks and Uncertainties
We are 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 third parties and key personnel, protection of proprietary technology, compliance with government regulations, and the ability to secure additional capital to fund operations.
The current global macro-economic environment is volatile, which may result in supply chain constraints and elevated rates of inflation. In addition, we operate in a dynamic and highly competitive industry and believe that changes in any of the following areas could have a material adverse effect on our future financial position, results of operations, or cash flows: the ability to obtain future financing; advances and trends in new technologies and industry standards; results of clinical trials; regulatory approval, market acceptance and third-party payor coverage for our products; development of sales channels; certain strategic relationships; litigation or claims against us, including claims related to intellectual property, product, regulatory, or other matters; and our ability to attract and retain employees necessary to support our growth.
Product candidates we develop require approval from the FDA and/or other international regulatory agencies prior to commercial sales. There can be no assurance that our product candidates will receive the necessary approvals or, if we do, the indications for which our products will be approved. If we are denied approval, approval is delayed, approval is for less than all of the indications we are seeking, or we are unable to maintain approval, it could have a material adverse impact on our business, financial position and results of operations.
We rely on single source manufacturers and suppliers for the supply of our product candidates, adding to the manufacturing risks we face. In the event of any failure by a supplier, we could be left without backup facilities. Any disruption from these manufacturers or suppliers could have a negative impact on our business, financial position and results of operations.
Liquidity and Going Concern
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), we have evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date that the consolidated financial statements are issued. We have financed our growth and operations through a combination of funds generated from revenues, the issuance of convertible preferred stock and common stock, bank borrowings, bank borrowings with warrants, the issuance of convertible notes and warrants, and other long-term debt. Since inception, we have incurred recurring operating losses, including net losses of $128.3 million and $78.5 million for the years ended December 31, 2024 and 2023, respectively. As of December 31, 2024, we had an accumulated deficit of $557.4 million.
We expect to incur significant expenses, operating losses, and negative cash flows from operations for the foreseeable future as we advance our product candidates through clinical trials, seek regulatory approval of such product candidates and pursue commercialization of any approved product candidates. These efforts require significant amounts of capital, adequate personnel and infrastructure, and extensive compliance-reporting capabilities. Even if our development efforts are successful, it is uncertain when, if ever, we will realize significant revenue from product sales. Additionally, the revenue interest financing agreement with HealthCare Royalty Partners IV, L.P. ("HCR") dated January 9, 2023, as amended (the "HCR Agreement") contains fixed quarterly payments and minimum cash covenants that require us to maintain cash and cash equivalents in an amount at least equal to $15.0 million for the remainder of the payment term, which is expected to conclude in 2031.
Our future funding requirements will be heavily determined by the timing of the potential commercialization of YUTREPIA and the resources needed to support development of our product candidates. Based on current operating plans and excluding any external financing, we will not have sufficient cash and cash equivalents to fund operating expenses and capital requirements and to meet our minimum cash covenants beyond one year from the issuance of these consolidated financial statements, and therefore, we have concluded that there is substantial doubt about its ability to continue as a going concern. Accordingly, we will require additional funding over the next twelve months to continue our operations and maintain compliance with debt covenants, and could be required to delay, reduce, or eliminate research and development programs, product portfolio expansion, or commercialization efforts, which could adversely affect our business prospects, or potentially force us to cease operations.
2. Basis of Presentation, Significant Accounting Policies and Fair Value Measurements
Basis of Presentation
These consolidated financial statements, 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"). Our financial position, results of operations and cash flows are presented in U.S. Dollars.
The accompanying consolidated financial statements include our wholly owned subsidiaries, Liquidia Technologies and Liquidia PAH. All intercompany accounts and transactions have been eliminated.
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 to be reasonable under the circumstances. We evaluate our estimates on an ongoing basis, including those related to the valuation of stock-based awards, certain accruals, and intangible and contract acquisition cost amortization, and make changes to the estimates and related disclosures as our experience develops or new information becomes known. Actual results will most likely differ from those estimates.
Revision of Previously Issued Financial Statements
During the three months ended March 31, 2025, we identified immaterial errors in our accounting treatment of the fourth and fifth amendments to the HCR Agreement. While we initially concluded that the amendments constituted extinguishments under ASC 470 Debt, we reevaluated the accounting treatment, revised our conclusions and determined the amendments to be modifications. The identified errors impacted our previously issued 2024 annual consolidated financial statements. We have evaluated these errors and determined that the errors were not material to our consolidated financial statements taken as a whole. However, we are voluntarily revising our previously issued 2024 annual consolidated financial statements to correct the immaterial errors. As a result of the revision, the loss on extinguishment has been eliminated and an adjustment to interest expense resulting from the modifications has been recorded, with corresponding adjustments to the long-term debt and accumulated deficit accounts.
A summary of the revisions to certain financial statement line items as of and for the year ended December 31, 2024 in the consolidated financial statements is presented below:
Consolidated Balance Sheet
| December 31, 2024 | |||||||||
| As Previously Reported | Adjustment | As Revised | |||||||
| Long-term debt, noncurrent | $ | 97,371 | $ | ( 2,103 ) | $ | 95,268 | |||
| Total liabilities | $ | 153,038 | $ | ( 2,103 ) | $ | 150,935 | |||
| Accumulated deficit | $ | ( 559,492 ) | $ | 2,103 | $ | ( 557,389 ) | |||
| Total stockholders' equity | $ | 77,275 | $ | 2,103 | $ | 79,378 |
Consolidated Statement of Operations and Comprehensive Loss
| Year Ended December 31, 2024 | |||||||||
| As Previously Reported | Adjustment | As Revised | |||||||
| Interest expense | $ | ( 12,486 ) | $ | ( 2,165 ) | $ | ( 14,651 ) | |||
| Loss on extinguishment of debt | $ | ( 4,268 ) | $ | 4,268 | $ | - | |||
| Total other expense, net | $ | ( 9,100 ) | $ | 2,103 | $ | ( 6,997 ) | |||
| Net loss and comprehensive loss | $ | ( 130,394 ) | $ | 2,103 | $ | ( 128,291 ) | |||
| Net loss per common share, basic and diluted | $ | ( 1.66 ) | $ | 0.03 | $ | ( 1.63 ) |
The adjustments noted above had a corresponding impact on the related consolidated statement of stockholders' equity line items. There was no impact to our consolidated statement of cash flows except for the presentation of net loss offset by the corresponding adjustment to reconcile net loss to net cash used in operating activities. In addition, the following notes to the consolidated financial statements have been updated to reflect the revised amounts: Note 11 "Income Taxes," Note 13 "Long-term Debt," and Note 16 "Segment Information."
We also revised previously reported quarterly financial information for these errors, a summary of which is presented in Note 17 "Quarterly Results (Unaudited)."
Summary of Significant Accounting Policies
Recent Accounting Pronouncements
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Subtopic 280). This guidance improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The Company adopted ASU 2023-07 during the year ended December 31, 2024 and applied it retrospectively for all prior periods presented. See Note 16 "Segment Information."
In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures. This guidance requires disaggregated information about a reporting entity's effective tax rate reconciliation as well as information on income taxes paid. This standard also includes certain other amendments to improve the effectiveness of income tax disclosures. The guidance is effective for annual reporting periods beginning after December 15, 2024, with early adoption permitted. Except for expanding disclosures, we do not expect the adoption of ASU 2023-09 to have a material effect on our consolidated financial statements taken as a whole.
In November 2024, the FASB issued ASU 2024-03, Disaggregation of Income Statement Expenses (DISE). This guidance requires disaggregated disclosure of income statement expenses for public business entities. ASU 2024-03 does not change the expense captions an entity presents on the face of the income statement; rather, it requires disaggregation of certain expense captions into specified categories in disclosures within the footnotes to the financial statements. As revised by ASU 2025-01, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures, the provisions of ASU 2024-03 are effective for fiscal years beginning after December 15, 2026, with early adoption permitted. Except for expanding disclosures to include more granular income statement expense categories, we do not expect the adoption of ASU 2024-03 to have a material effect on our consolidated financial statements taken as a whole.
Cash, Cash Equivalents, and Concentration of Credit Risk
We consider all highly liquid investments with a maturity of three months or less at the date of purchase to be cash equivalents.
Financial instruments that potentially subject us to concentrations of credit risk consist of cash and cash equivalents. We are exposed to credit risk, subject to federal deposit insurance, in the event of default by the financial institutions holding our cash and cash equivalents to the extent of amounts recorded on the consolidated balance sheet. Our cash and cash equivalents are held at multiple accredited financial institutions. We have not experienced any losses on such accounts
and do not believe that we are subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships. Such deposits have exceeded and will continue to exceed federally insured limits.
Accounts receivable are stated at net realizable value and net of an allowance for credit losses as of each balance sheet date, if applicable. One customer accounted for 95% and 99% of our accounts receivable, net as of December 31, 2024 and December 31, 2023, respectively. As of December 31, 2024 and 2023, we have not recorded an allowance for credit losses.
We capitalize prelaunch inventory prior to receiving regulatory approval if regulatory approval and subsequent commercialization of a product is probable and we also expect future economic benefit from the sales of the product to be realized. Prior to this conclusion, we expense prelaunch inventory as research and development expense in the period incurred. For prelaunch inventory that is capitalized, we consider a number of specific facts and circumstances, including the product's shelf life, the product's current status in the development and regulatory approval process, results from related clinical trials, results from meetings with relevant regulatory agencies prior to the filing of regulatory applications, potential obstacles to the approval process, viability of commercialization and market trends. In late 2023, based on our assessment of the legal and regulatory process related to YUTREPIA, we concluded that we met the criteria to capitalize expenditures for prelaunch inventory. We capitalized $10.8 million of prelaunch inventory as of December 31, 2024 and none as of December 31, 2023. If either regulatory approval or market acceptance post-approval of YUTREPIA do not occur at all or on a timely basis prior to the inventory shelf-life expiration, we may be required to write-off some or all prelaunch inventory, which could affect our financial condition and financial results.
ASC 842 Leases sets out the principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. The standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. For operating leases, the asset and liability is expensed over the lease term on a straight-line basis, with all cash flows classified as an operating activity in the Statement of Cash Flows. For finance leases, interest on the lease liability is recognized separately from the amortization of the right-of-use asset in the Statement of Operations and Comprehensive Loss and the repayment of the principal portion of the lease liability is classified as a financing activity, while the interest component is classified as an operating activity in the Statement of Cash Flows.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation of property, plant and equipment is computed using the straight-line method over the estimated useful lives of the assets beginning when the assets are placed in service. Estimated useful lives for the major asset categories are:
| Lab and build-to-suit equipment (years) | 5 - 7 | |
| Office equipment (years) | 5 | |
| Furniture and fixtures (years) | 10 | |
| Computer equipment (years) | 3 | |
| Leasehold improvements | Lesser of life of the asset or remaining lease term |
Major renewals and improvements are capitalized to the extent that they increase the useful economic life or increase the expected economic benefit of the underlying asset. Maintenance and repairs are charged to operations as incurred. When items of property, plant and equipment are sold or retired, the related cost and accumulated depreciation or amortization is removed from the accounts, and any gain or loss is included in operating expenses in the accompanying Statements of Operations and Comprehensive Loss.
We review 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. We also review for impairment when conditions exist that indicate the carrying amount of the assets may not be fully recoverable. In those circumstances, we perform undiscounted operating cash flow analyses to determine if an impairment exists. When testing for asset impairment, we group 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.
We assess 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. We have one reporting unit. We have 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 measuring the goodwill impairment loss, if applicable.
We completed our annual goodwill impairment test as of July 1, 2024 and concluded that no impairments had occurred. There have been no significant events or changes in circumstances which indicated that the carrying amount of goodwill was not recoverable subsequent to the assessment.
We recognized a liability related to amounts received in January 2023, July 2023, January 2024, and September 2024 pursuant to the HCR Agreement under ASC 470-10, Debt and ASC 835-30, Interest - Imputation of Interest. The liability will be accreted under the effective interest method based upon the amount of contractual future payments to be made pursuant to the HCR Agreement. Amendments are assessed under ASC 470 to determine the appropriate treatment as troubled debt restructurings, extinguishments or modifications. If the timing or amounts of any future payments change, we will prospectively adjust the effective interest and the related amortization of the liability.
We recognize 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:
In order to identify the performance obligations in a contract with a customer, we assess the promised goods or services in the contract and identify 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.