Zevra Therapeutics Inc (ZVRA) 2018 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the KemPharm Third Quarter 2018 Corporate Update call.

(Operator Instructions) As a reminder, this call is being recorded.

As a reminder this call may be recorded.

I would now like to turn the conference over to Josh Drumm of Investor Relations.

You may begin.

Thank you, Sonia.

Good afternoon, and thank you for joining our call today to discuss KemPharm's Q3 results and recent corporate and product development highlights.

Before we begin, I would like to remind our listeners that remarks made during this call may contain forward-looking statements that have -- involve risks and uncertainties and are subject to changes at any time including, but not limited to, statements about KemPharm's expectations regarding future operating results.

Forward-looking statements on this call are made pursuant to the Safe Harbor provisions of the federal securities laws.

Information contained in the forward-looking statements reflect management's beliefs, based on current expectations and is subject to change and actual results may differ materially from forward-looking statements.

KemPharm is not under any obligation to update such factors or to announce publicly any revisions to any forward-looking statements based on future circumstances, except as required by law.

More complete information regarding forward-looking statements, risks and uncertainties are available on the reports that KemPharm files with the SEC.

These documents are available at KemPharm's website at www.kempharm.com under the Investor Relations section, and we encourage you to review these documents carefully.

Speaking on today's call will be Travis Mickle, KemPharm's President and CEO; LaDuane Clifton, CFO; and Rusty Johnson, Chief Business Officer.

Following the remarks, we'll open the call to your questions.

With that, it's my pleasure to introduce Travis Mickle.

Thanks, Josh, and welcome everyone, and thanks, for joining us today.

As a quick intro and as many of you already know, KemPharm is the specialty pharmaceutical company focused on the R&D related to prodrugs.

The core team here at KemPharm has been working on prodrugs upwards of 20 years together.

One of our most notable accomplishments was the discovery and development of the product Vyvanse, which is Shire's $3 billion plus market leading ADHD product.

All of this secured when we're all together at New River Pharmaceuticals.

The last 4 months have been truly shown what our technology and team can do and are perhaps the best 4 months of progress I have seen at any company at our stage.

In that span of time, we have announced a commercial partnership for our approved product Apadaz, a technology partnership with twoXAR to export therapeutic areas outside of our focus as well as expand our potential of our LAT prodrug technology.

Posted the foremost experts on ADHD and abuse to discuss the area, and we closed to very strategic financing to position us for bigger and better things in the future.

We continue to advance our lead assets rapidly and that was highlighted by the positive results from our efficacy study for KP415 showing onset of action at 30 minutes lasting out to 13 hours.

We also completed our human abuse potential program with the collective data surpassing even the best prodrug data I have seen in my experience.

With these key studies completed, we are now poised to file the NDA as soon as the first quarter of next year.

We announced last week, the commercial license of Apadaz to KVK, and we believe and think that KVK would agree that Apadaz has the real potential to disrupt the hydrocodone acetaminophen market.

This is a large market with 4 billion to 5 billion tablets dispensed annually.

This agreement not only secures Apadaz a supply and distribution partner, it also secures KemPharm a meaningful part of the economics while KVK will ultimately commercialize the product.

Turning to the commercial strategy.

As we've outlined a number of times, KVK with KemPharm's cooperation and collaboration will intend to secure contracts directly with PBMs and MCOs to replace current generic hydrocodone products as I mentioned before, which is a very large tablet market in exchange for supplying the products to those plans at their current costs.

This will be an active push by plans to Apadaz and will not require KVK to establish a large sales force.

We expect in conjunction with KVK that this potential launch could be a soon as the second half of next year, possibly sooner with various leverage that we can pull in the future.

Turning now to the prodrug technology collaboration with twoXAR.

For the second deal that we concluded in 2 weeks we announced an R&D partnership.

In this agreement, KemPharm will produce prodrug lead candidates of our products with twoXAR's candidates based on their AI-based technology.

These have been identified as potentially having novel indications or uses.

We believe this has both near and long-term value as we receive technology licensing fees and fully utilizes our research team.

We received development milestones as well as royalties on commercial sales.

The value here, ultimately, is that this expands KemPharm's potential revenue opportunities, without requiring a hefty development budget in therapeutic areas we don't intend on focusing in.

Over the last month, we also hosted a KOL event with experts in ADHD as well as stimulant abuse.

The experts provided a great overview of the ADHD market, clinical data, key unmet needs as well as their opinions on these topics.

I encourage you to listen to the recorded webcast to learn more.

Focusing now on KP415, which -- that was intended to be upon actually.

We believe that the totality of our clinical efficacy and the HAP data would make this product the most differentiated methylphenidate based product should it be approved.

We are still planning and focusing on a first quarter NDA filing and can see -- which for a product that could also see patent life out until 2037.

From the clinical evidence, it's highly suggested that all of the benefits listed here, of which any one of them could have a high value in this potential market, are all inherit to the product.

Together, this product candidate has a blockbuster potential.

If we look at the data we announced back in July related to the efficacy study, you can see -- start to see, why we believe this potential exists.

In the standard classroom efficacy study, the data shows that KP415 has an onset of action at 30 minutes and lasts out to 13 hours.

Vyvanse, a $3 billion-plus product in ADHD, also a prodrug of amphetamine in this case, has onset of -- at 1.5 hour to 13 hours.

So what would it mean for KP415?

Fundamentally, if someone takes this product at 7:00 a.m., it will start to a show meaningful benefit at 7:30 and last out until 8:00 p.m.

Data announced from our human abuse potential trials were even more remarkable than the efficacy study.

The prodrug behind KP415 and KP484 showed a greatly diminished drug liking versus active comparators when administered through oral, intranasal or intervenous routes of abuse.

Market research has shown that abuse potential has great value with physicians, especially when combined with clinical benefits that we've already demonstrated in our efficacy study.

At this point, I'd now like to turn the presentation over to LaDuane Clifton, our CFO.

Thank you, Travis, and good afternoon.

As Travis mentioned, we completed an underwritten public offering of our common shares in early October.

We issued approximately 8.3 million shares of common stock at $3 per share and received net proceeds of approximately $23.2 million.

The offering was strategically timed with the goal of improving our balance sheet to potentially strengthen our negotiating position with various potential partners, initially for Apadaz and now for those interested in KP415 and KP484.

Pro forma shares outstanding after the offering was 24.4 million.

Now to turn to our third quarter results.

For third quarter of 2018, KemPharm reported a net loss of $15.1 million or $0.94 per basic and diluted share, compared to a net loss of $10 million or $0.68 per basic and diluted share for the same period in 2017.

The net loss in Q3 2018 was driven primarily by a loss from operations of $18 million, net interest expense and other expenses of $1.6 million and partially offset by noncash fair value adjustment income of $4.5 million.

The $18 million operating loss increased by $8.4 million compared to last year's third quarter operating loss of $9.6 million.

The increase was primarily the result of an increase in R&D spending of $7 million, severance expense recognized during the quarter of $1.6 million and partially offset by a decrease in general and administrative expenses of $300,000.

As of September 30, total cash investments, which is comprised of cash, cash equivalents, restricted cash from marketable securities was $14.1 million.

This represented a decrease of $15.2 million compared to June 30, 2018.

The increased cash burn rate was due primarily to the timing of accounts payable and it is not expected to continue at that level.

Combined with the net proceeds from the offering of $23.2 million, pro forma cash investments was approximately $37.3 million.

Based on our current operating forecast, existing resources are expected to fund operating expenses and capital expenditures requirements into, but not through, the third quarter of 2019.

Our current forecast projects a cash burn rate of between $10 million to $13 million a quarter, but we are continuing to evaluate the impact of the recent Apadaz license agreement on our cash runway, including the benefit of some of the responsibilities now having been shifted to our partner, KVK.

We expect that the actual burn rate may be lower.

So now with that, I will turn the call back over to Travis.

Thanks, LaDuane.

Looking forward, we see several high value milestones upcoming, including a potential strategic partnership for KP415 and KP484, NDA filing for KP415 in clinical studies as well as results for KP484.

Additionally, we do plan, as I discussed on the KVK call last week, to move one or more prodrug candidates from our R&D team into our pipeline.

Please look for these announcements over the coming weeks and months.

So that begs the question, what is next?

We have accomplished so much over the last 4 months but the work has just begun.

We still have ongoing product development, but at the same time, we are working diligently to secure terms of a partnership with the goal of accomplishing this by year-end.

Due to the fact that this is a structured process with defined timelines, we don't expect something sooner.

But at the same time, it also allows us to be able to project a potential completion date.

We are also working with KVK to launch Apadaz as soon as possible as well as securing those plans to drive demand.

As you can see, we believe that there are a number of big catalysts for the company in front of us.

We also believe that you can see, we are now starting to demonstrate really what we can do here at KemPharm.

At this point, that concludes our presentation.

I can ask if there is any questions?

(Operator Instructions) Our first question comes from Randall Stanicky of RBC Capital Markets.

Hi, guys, this is Dan Busby on for Randall.

A few questions.

First on KP415, can you provide any more broad color on how those discussions are going?

I know you said it was a structured process.

And does your confidence level in getting a deal done before year-end remain unchanged based on those discussions?

I can't really provide any additional color because, again, we're within that process, and certainly, we don't want to indicate anything positive or negative to potential partners.

But we still remain as we have in the past.

We believe that this is an attainable goal.

And we're working diligently to achieve it.

Okay.

And a follow-up on that.

Do you have a date yet for your pre-NDA meeting with FDA on KP415?

And is that any way a gating factor to getting a deal done?

I guess put differently, do commercial partners want to hear FDA's feedback before committing to anything?

Not aware that anybody has made that requirement.

We don't have a date secured.

We have a general timeline.

So I've heard nothing to that nature.

Okay.

And is that still expected to before year-end or shortly thereafter?

I believe best we can do right now is probably first quarter, so early first quarter.

Okay.

And then switching gears to Apadaz.

Realizing it's still early, but can you share any initial feedback from the channel on your deal with KVK?

Have you noticed the difference in conversation, that now you have a proven partner on board for supply and distribution?

Well, that's really now KVK's area to comment on and lead foreword.

We'll be collaborating with them, certainly helping them to get the product off the ground.

But there's several steps that we have to undergo before that sort of discussion in detail would happen.

So I still see that there's a lot of interest.

I think this announcement of the deal will catalyze those discussions, but I can't give any more specifics because it really is KVK's product.

Okay, that's fair.

And then just one last question on pipeline.

Let's assume for the moment that you do reach a partnering deal for both KP415 and KP484.

Later this year, that more or less passes off your responsibility for those products.

So I know you alluded to potentially bringing something into the clinic next year, but is there any more color you can share on how you're thinking about that?

And kind of what you're priorities are in terms of bringing more products forward?

Yes, well, if KP415 and KP484 do get partnered, we don't see that as the end of our development, so certainly now it becomes a commercial product for another company, and they'll be working diligently to get the product approved with us.

But we would still lead that development effort given our knowledge base and, really, the resources here focused entirely on that effort.

Beyond that where we were 2 years ago with KP415 was we just opened an IND.

So functionally you can see we're able to advance several products very, very rapidly through the development process.

And we hope, again, that we're going to have high-value opportunities in front of us and that is what we'll bring forward, and those would also be advanced more than likely with similar timelines.

(Operator Instructions) Our next question comes from Henry Xhao of Oppenheimer.

This is Esther Rajavelu for Henry.

I just wanted to clarify on Apadaz, are you or KVK managing discussions with PBM's and payors?

KVK is the commercializing party, so anything that we would do would be funneled through them.

So a lot of our discussions to-date have been through KemPharm, but now the agreement has done, they lead all efforts.

Got it.

So that milestone payment that you are expecting when a deal gets done with the payors, that's really kind of -- that timeline is really determined by them rather than your team?

As I described on the call last time, KVK is driving the bus but at least we're a backseat driver in this case.

So while I do have to defer to their leadership and their timing, we have the relationships in place so we'll be working actively with them to get them across the goal line.

Thank you.

And ladies and gentlemen, this does conclude our question-answer session.

I would now like to turn the call back over to Travis Mickle, for any closing remarks.

Thank you.

In closing, I'd like to thank you for your time and interest, and we intend to build upon these initial successes to bigger and better things.

Have a great rest of your evening or afternoon.

Thanks.

Ladies and gentlemen, thank you for participating in today's conference.

This concludes today's program.

You may all disconnect.

Everyone, have a great day.