Liquidia Corp

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, 2023 and 2022, 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, 2023 and 2022, 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.

Basis for Opinion

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 audit 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.

Emphasis of Matter

As discussed in Note 1 to the consolidated financial statements, the Company has incurred recurring losses and may require additional capital to fund operations. Management’s evaluation of the events and conditions and management’s plans to mitigate this matter are also described in Note 1.

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.

Revenue Interest Financing Payable

As described in Note 12 to the consolidated financial statements, during 2023 the Company entered into a revenue interest financing agreement (“RIFA”) with HealthCare Royalty Partners IV, L.P. (HCR) and HealthCare Royalty Management, LLC, for an aggregate investment amount of up to $100.0 million made available in four tranches. As consideration for the investment amount and pursuant to the RIFA, the Company has agreed to pay HCR either a) quarterly fixed payments and a one-time fixed payment or b) a tiered royalty on the Company’s annual net revenue after the first commercial sale of its product, YUTREPIA (the “Revenue Interests”). The Company is currently required to make certain fixed quarterly payments to HCR which include an additional amount on a ratable basis to reflect the funding of additional amounts by HCR under the RIFA and a one-time fixed payment. If the Third Investment Amount is funded, the applicable tiered percentage will range from 3.60% to 10.28% on the first $250 million on annual net revenue, 1.44% to 4.11% on the next $250 million in annual net revenue, and 0.36% to 1.03% on all annual net revenue in excess of $500 million. The specific royalty rate within such ranges will depend upon the total amount advanced by HCR and the achievement of a certain annual net revenue threshold for the calendar year 2025. Management recorded the total funds received from HCR of $42.5 million under the terms of the RIFA as a liability. The issuance costs, consisting primarily of legal fees, totaled $0.9 million and were recorded as a deduction of the carrying amount of the liability and are being amortized under the effective interest method over the estimated period the liability will be repaid. Management estimated the total amount of payments over the life of the RIFA to determine the interest expense to record to accrete the liability to the amount ultimately due. For the year ended December 31, 2023, management estimated an effective annual interest rate of approximately 17% inclusive of RIFA interest accretion and debt issuance cost amortization. Over the course of the RIFA, the effective annual interest rate is expected to be affected by changes in forecasted payments. On a quarterly basis, management will reassess the expected amount and timing of payments, recalculate the amortization and effective interest rate and adjust the accounting prospectively as needed. The Company recognized accretion of $6.0 million for the year ended December 31, 2023. The current and long-term portions of the RIFA payable recognized as of December 31, 2023 were $2.6 million and $43.4 million, respectively.

The principal considerations for our determination that performing procedures relating to the revenue interest financing payable is a critical audit matter are (i) the significant judgment by management when developing the estimates of future payments and the related accretion and (ii) a high degree of auditor judgment, subjectivity, and effort in performing audit procedures and evaluating audit evidence related to management’s determination of the accounting treatment of the transaction and estimates of future payments and the related accretion.

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) testing management’s process for developing the estimates of future payments and the related accretion; (ii) testing the completeness and accuracy of data used by management in developing the estimates, (iii) evaluating the appropriateness of the methods used by management in developing the estimates, and (iii) evaluating management’s assessment related to determining whether the amendments to the RIFA represented an accounting modification or extinguishment. Evaluating management’s assessment of the accounting modification or extinguishment determination included (i) evaluating the impact of the contractual terms of the amendments by examining the contracts; (ii) evaluating 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 RIFA, (iii) considering whether the conclusions reached by management were consistent with the terms of the arrangements and evidence obtained in other areas of the audit and (iv) evaluating the presentation of the related financial statement disclosures.

/s/PricewaterhouseCoopers LLP

Raleigh, North Carolina

March 13, 2024

We have served as the Company’s auditor since 2014.