Liquidia Up 26.6% as It Agrees to Pay $175 Million to End the Lawsuits

Seoul — U.S. stocks fell on Oct. 14 (local time): the S&P 500 lost 1.11%, the Nasdaq 1.88% and the Russell 2000 small-cap index 1.93%. Liquidia (LQDA), a maker of pulmonary arterial hypertension drugs, rose 26.59% to close at $33.94 anyway. An 8-K, the current report U.S. companies file with the SEC for major events, confirms the reason.

Liquidia rose 26.6% after settling its patent fight

Liquidia rose because it ended all of its litigation with rival United Therapeutics (UTC) through a settlement. In an 8-K filed Oct. 14 (Items 1.01 material agreement, 1.02 termination of an agreement, 7.01 and 8.01 other events, 9.01), the company said the settlement agreement took effect Oct. 13. It covers infringement suits over three patents (U.S. Patent Nos. 11,824,327, 11,357,782 and 10,989,494) and the trade-secret and breach-of-contract case in North Carolina Business Court.

The 8-K lays out the key terms:

• Liquidia can keep marketing, selling and promoting Yutrepia (treprostinil inhalation powder) for pulmonary arterial hypertension (PAH).
• It will ask the FDA to amend the label to remove PH-ILD (pulmonary hypertension associated with interstitial lung disease) as an indication, along with any reference to it.
• It will immediately and permanently stop marketing, advertising, promoting and detailing the drug for PH-ILD.
• It will make a net payment of $175.0 million to UTC. The remaining payment terms are cut off in the 8-K text we have.

Reuters reported that the settlement removes a key litigation risk, and Seeking Alpha said the stock rose 27% on it. Zacks put the settlement at $380.7 million in its headline. That differs from the $175.0 million net payment in the 8-K, so the full filing is needed to see what the larger figure includes.

How solid is the news? The end of litigation, and with it the risk of being pulled off the market, is substantive. But the $175.0 million payment equals about 5.8% of a market value of roughly $3.04 billion at the close. Dropping the PH-ILD indication also narrows the patient group the drug can be sold to. MarketBeat later reported an upgrade to "Outperform" by LifeSci Capital and heavy call-option buying, though both came after the move began.

Dollar volume was about $704 million, and the stock is up 22.7% over two days and 27.2% over five. With the indexes down sharply, the move looks driven by company news rather than the sector or overall risk appetite. The price history also shows a 57.19% one-day drop on Sept. 30, which leaves the stock 50% below its Sept. 10 level. We found no explanation for that drop. Seven Form 4 insider-trade reports were filed Oct. 13, and we did not review their contents.

Two things show whether the gain holds. One is the full 8-K: the timing and remaining terms of the $175.0 million payment show how heavy the cash burden is. The other is whether dollar volume stays near this level the next session, which shows whether buying outlasts the first reaction.

What happened to the stocks we covered earlier

Both stocks that rose for no identified reason fell afterward. Of the three backed by filings, two edged up and one fell 8.5%. The three reported-only names ranged from +8.3% to -16.7%. A filing did not guarantee what came next.