Zevra Therapeutics Inc (ZVRA) 2018 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the KemPharm Fourth Quarter and Year-end 2018 Results Conference Call.

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

I would now like to introduce your host for today's conference, Mr. Jason Rando.

Please go ahead.

Good afternoon, and thank you for joining our call today to discuss KemPharm's Fourth Quarter and Full Year 2018 Financial and Corporate Results.

Before we begin, I would like to remind our listeners that remarks made during this call may contain forward-looking statements that 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 are made pursuant to the safe harbor provisions of the federal securities laws and represent management's current expectations.

Actual results may differ materially.

KemPharm disclaims any obligation to update or revise its forward-looking statements, except as required by law.

More complete information regarding forward-looking statements, risks and uncertainties can be found in the reports KemPharm files with the SEC, which are available on KemPharm's website at www.kempharm.com, under the Investor Relations section.

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 will open the call to your questions.

With that, it is my pleasure to introduce Travis Mickle.

Thanks, Jason, and I'm pleased everyone to join today's call.

For those of you that don't know KemPharm or need a little refresher, KemPharm quite simply is a project company.

We take existing approved drugs, improve them with our technology, then develop those products and either out-license those candidates to other commercial organizations or in select cases could consider commercializing those products ourselves in the future.

2018 was a year marked with a lot of key accomplishments and value creation.

We believe that 2019 will be the key year in which we start to see that value recognized.

Looking back, we completed all the efficacy in human abuse potential trials necessary to file the NDA for KP415 as well as many other clinical, nonclinical and manufacturing work that you really never heard about.

Apadaz was finally approved with a label, we believe, is differentiated and KVK ultimately agrees with us.

Finding the right partner that shares our vision for Apadaz was the vital step in that commercial process.

We also advanced our goals with the technology by entering into a collaboration with twoXAR and introduced what we believe could be another highly valuable asset in KP879.

In order to realize the value created last year and forge ahead with our plan to create more, we completed an offering to bring some strategic capital in order to advance the KP415 NDA and potentially to approval, complete the partnership process with KP415 and KP484 as well as start to reduce some of our outstanding debt.

We reduced this debt through a conversion of principle on our senior convertible note with Deerfield, back in June, as well as an exchange in October of debt to preferred shares.

All of these items were key actions to take in 2018 in order to prepare for the next stage in our continued growth.

Most of those on the call are familiar with KP415 and KP484, our lead candidates for the treatment of ADHD.

But just quickly, I will recap.

KP415 and KP484, are unique product formulations using our prodrug of d-methylphenidate, known as serdexmethylphenidate or SDX.

Both products address unique needs within the ADHD space.

KP415, which is intended to be a product with broad appeal to many patients and similar to a methylphenidate version of Vyvanse, has already demonstrated 30 minutes of onset of effect, lasting through 13 hours of duration, which is unlike that of the other methylphenidate products.

KP484, which is focused more on a subset of adults, like Shire, Takeda, Mydayis product, is intended for a much longer full-day duration.

Both products have long-lived IP, and the prodrug in both has proven lower-abuse potential in clinical trials.

As I've already mentioned in the previous slides, we have completed our clinical work with KP415 and have demonstrated that this product meets the unmet needs of onset of action, duration and lower abuse potential.

Turning now to, I believe, the reason why most of you are probably on the call.

The government shutdown has delayed our pre-NDA meeting until the second quarter, and -- which we plan to file the NDA for KP415 shortly thereafter, assuming that there's nothing that comes out of that meeting that would be unexpected.

As we look forward and talk about our partnering process, I believe that we have the right interested parties fully engaged in a very competitive process.

And we also believe we are in a better place as we sit here today than when we gave the update in December.

Now get -- don't get me wrong, at that update, there were several parties that were interested and some proposals in hand.

Those parties remain very active in late-stage discussions, and we've added several more well-informed potential partners since that time.

Now we don't control anyone else, and there is no such thing as a sure thing, but everything we have seen, heard and been a part of suggest that we're in a good place with this process.

This added time and effort appears to be paying off, and well timing, I'm sure, is a question on everyone's mind, I bet you can understand that given how the process has advanced and become quite competitive, indicating anything other than as soon as possible at the highest value with the best partner would really be giving away our strategic advantage.

What I can guarantee you is that we will update you as soon as possible.

Turning now to Apadaz.

We continue to work with KVK to advance Apadaz ahead to a second-half launch.

One part of that preparation was receiving approval for 2 additional strengths so that we can have comparable doses with those commonly used in hydrocodone/acetaminophen treatment.

Interestingly, this was a much longer process than it should've been.

As shortly after approval, we filed our sNDA, and there were no concerns, questions or issues raised by the FDA at any point during the process.

I believe that this continues to highlight the difficult regulatory environment that's involved with all opioids.

So the next big question that we always get is, how is Apadaz going?

Well, we're way -- well on our way with KVK focused on this second half launch.

We're now on compendia with pricing for both the Apadaz brand and the authorized generic, all of which belong to KVK and KemPharm.

We continue to provide support for payer outreach and now with a few gating items behind us, like the compendia pricing supply as well as the additional strengths.

We are full stream -- full steam ahead.

Let's briefly take a look at what's ahead for KP415 and 484 -- what's beyond KP415 and KP484.

As you may have seen, we have continued to deemphasize our other opioid candidates and as you can see here, we no longer actively developing these candidates at this time.

We do believe that there are other companies that still see a market opportunity and a path forward for better products in this space.

But given the regulatory, commercial, political, societal and legal backdrop of opioids, we just don't see that the reward outweighs the risk at this time.

There could be one exception with our prodrug of oxycodone.

If our efforts with Apadaz start to show momentum, we more than likely will advance this product ahead as the oxycodone immediate-release and oxycodone/acetaminophen market are very large, very similar to the hydrocodone/acetaminophen marketplace.

We announced late last year the advancement of one of our candidates we refer to as KP879.

879 is intended to treat stimulant use disorder, which essentially is stimulant addiction.

Now for opioid addiction, you have the dupe and orphan products and very cheap generic methadone.

But there's currently no approved treatments for stimulant use disorder.

And as you can see, there's a nice size market opportunity here.

KP879 presents a great chance to add a meaningful treatment where there is none.

Similar to the agonist therapies with opioid addiction, methylphenidate released slowly over a long period of time could provide the pharmacological support these individuals need.

Adding the fact that there's a low abuse potential associated with the pure prodrug, this really appears to be an ideal candidate for development.

Since we have ample data on the prodrug alone, we expect to move rapidly into some proof-of-concept clinical studies, and I will provide more definitive timing after the KP415 NDA filing.

Given that there are no treatment options, we also believe that there could -- we could be able to rely on the FDA programs like Fast Track and so forth, to help move this program even faster than our already rapid development process.

Another part of creating long-term value has been for us to use our technology to diversify outside of our core therapeutic focus and create prodrugs for others to develop and commercialize.

We accomplished at least the first partnership like this with twoXAR last year, and we will continue to look for similar opportunities to fully leverage our greatest resource.

At this point, I'd like to turn the call over to LaDuane, who'll provide us with a financial update.

LaDuane?

Thank you, Travis, and good afternoon, everyone.

I will provide a brief overview of our operating results for both fourth quarter and full year 2018.

Additional details are available in our press release, which was published just prior to this call.

For Q4 of 2018, we reported a net loss of $5.2 million or $0.20 per basic share and $0.21 per diluted share that is compared to a net loss of $10.6 million or $0.72 per basic and diluted share for the same quarter in 2017.

The net loss in Q4 2018 was driven primarily by an operating loss of $9.3 million and net interest expense and other items of $1.6 million, which was partially offset by noncash fair value adjustment income of $5.7 million.

The $1.1 million increase in operating loss for Q4 of '18 compared to last year's fourth quarter operating loss of $8.2 million was primarily the result of an increase of $800,000 in R&D spending and $400,000 in G&A expenses, respectively.

Moving ahead to our full year 2018 results.

We reported a net loss of $56.5 million or $3.15 per basic and diluted share as compared to net loss of $43.4 million or $2.96 per basic and diluted share for 2017.

Net loss for the year 2018 was driven primarily by an operating loss of $55.9 million and net interest expense and other items of $6.5 million, partially offset by noncash fair value adjustment income of $6 million.

The operating loss for 2018 of $55.9 million was an increase of $22.5 million as compared to an operating loss of $33.4 million for 2017.

This was primarily due to an increase of $21.2 million in R&D expense and $1.6 million in severance expense that was recognized for 2018, this was partially offset by a modest decrease in G&A expense of $300,000.

As of December 31, 2018, total cash and investments was $22.4 million, which was actually an increase of $8.3 million compared to the end of Q3 2018.

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

If we step back from the details for just a moment, it's easy to see that we have been actively purpose -- we have been actively working towards a strategy that adds financial flexibility while taking steps to address our long-term financial stability.

As Travis mentioned earlier, during the year we converted $3.3 million of our senior secured debt into equity.

We reduced debt by another $9.6 million via an exchange into preferred shares, and we completed an underwritten offering of 8.3 million shares this past October, which provided net proceeds of $23.1 million and added liquidity.

Just today, we announced that we have entered into a common stock purchase agreement with Lincoln Park Capital Fund, which provides a commitment for them to purchase up to $15 million worth of KemPharm common shares based on the terms of the purchase agreement.

The timing of these purchases is at the sole discretion of KemPharm and provides additional flexibility for the company as we continue our progress toward the filing of an NDA for KP415, and as we seek to bring the best possible outcome from the partnering process for KP415 and 484.

Overall, we continue working on multiple long-term value creation opportunities, always seeking to do so, preferably in nondilutive ways wherever possible.

So with that, I'll turn the call back to Travis.

Thanks, LaDuane.

And really to wrap up today's call and try to highlight how the actions and accomplishments of last year as well as those we have planned to execute in this year, really do address that value creation as and -- as well the ultimate realization of that value.

KP415, 484 represent our highest value assets.

There is real and tangible interest in those products outside the walls of KemPharm.

Our job is to capture that value with the best potential partner, but also not forget that work doesn't in there.

Many of these types of potential deals have other milestones that may be squarely in our camp to accomplish.

This could include the KP415 NDA submission, except in send or approval, and also conclude labeling and scheduling.

Some of these items could be critical for potential cash milestones, but other -- and even more importantly, the partner would need these to launch the product.

From there, the process doesn't stop.

As with Vyvanse, a multibillion-dollar product isn't launched, it's built.

There will be added studies, age groups like preschool, label changes and potential new indications that build a marketing story and lead to a better and better product profile and a larger market share.

And just consider, I'm only really referring to KP415.

Beyond that, and I'll try and answer -- excuse me, of course, there are no assurances of any of what could be or what we've said, but certainly, we're all working diligently towards the best outcome.

Beyond that, and I'll try and answer the question of what's next.

Nicely, we have the ability to build our own pipeline of opportunities, like KP879 and the R&D collaborations with twoXAR and Genco.

We look to potentially license these opportunities similar to what we have with Apadaz and working towards with KP415 and KP484, or in the -- point in the near future some of these may be commercial assets of KemPharm.

As you can see today, we are working towards executing on our plan as well as preparing for the future.

I appreciate your time on today's call and your continued support.

I'd be happy to take any question.

(Operator Instructions) Our first question is from Randall Stanicky with RBC Capital Markets.

This is Dan Busby on for Randall.

First question, KP415, KP484, could you go into a little more detail on what exactly happened with the partnering process, given that it was a structured process?

It can be a little hard to tell from the outside whether there's a bidding war going on or whether you were lowballed initially.

So any color there would be helpful.

And then I don't know if you can comment on this, but would you characterize the offers you've received thus far as fair?

Yes.

I think, basically, all we've said -- we've already said either in the press release or on this call, again, we have tangible real interest.

It's a competitive process.

I can't really give any details about how that process has evolved.

I think you could probably ascertain different organizations that may be interested in ADHD.

But there are certainly others that you may not be able to identify.

So there were interested parties last year, so if you assume there's parties, there's more than one.

And we've added more interested parties.

So I think that can give a sense that there's multiple folks involved here.

Okay, fair enough.

And is there a new timeline on that process?

Or what you can see at this point?

I think we'd be giving away our advantage here by indicating any sort of timing.

We've pushed every party as rapidly along as we can.

And we're -- have our own internal process to execute on.

So we're going to keep that one pretty close to the vest right now.

Okay, got it.

Moving on then.

You touched upon it earlier, can you point us to any specific pipeline milestones or other updates that we should be focused on this year outside of KP415, KP484 in terms of just assessing progress with some of your other pipeline?

Luckily for 879, we already have a lot of clinical work done there.

So filing the IND there isn't really something of real importance.

It's more of a regulatory step that you can officially kind of move ahead in studies with that molecule specifically.

But again, this is the same prodrug that's found in 415 and 484, it's just now at higher doses and all by itself.

So I think in this case, we'll have to provide more guidance once we get the NDA submitted.

We have some studies that are -- that we're looking forward to.

But we don't have timing on those as of yet.

Okay.

And then just one last one.

Perhaps for LaDuane.

I might've missed it, but can you provide any broad color on operating expense trends for 2019?

Yes.

So I spoke briefly about our current forecast.

I think for -- where we are currently, our burn rate is sort of between $10 million to $12 million.

Although I expect that as we go into the deeper part of the year, our burn rate is going to be reduced somewhat.

So that of course, supports the cash run rate forecast that I suggested during the call, which takes us into Q3.

Our next question is from Scott Henry with Roth Capital Partners.

Perhaps, just staying on the model.

Can you tell me how many shares you ended the fourth quarter with?

And how should we think about shares outstanding in 29 (sic) [2019], excluding anything with Lincoln Park, but just some of the other levers?

I'm just trying to get a sense of where the cap table is, in kind of real-time?

Yes.

Thank you.

So it's largely -- let's see, we ended the year at 26.5 million shares approximately.

And that's approximately where we were as we came out of the offering.

So that's continued there, that's where it is at the end of the year.

As we look forward, I mean, we expect to be able to utilize the facility with Lincoln Park.

But obviously, changes in price changes how much dilution that represents.

Our intention is to manage that closely.

We don't want to take down more than we need to.

But we do like the fact that it provides some flexibility, potentially to extend our cash runway and make sure that we have what we need to continue executing on a lot of the things that Travis referred to.

Okay, great.

Thank you for that color.

And then KP484.

And you may have said this already, I apologize if you did.

But when should we expect that data to read out?

Right now the work that's being done with KP484 is really around formulation and some planning in those clinical studies.

So second half of this year, we can expect to start some of those studies.

But we may not have data until early 2020.

But again, I'll have more definitive timing on that as we kind of move into 2019.

Okay.

And on -- should we -- in the model again, just to shift back.

Should we expect any milestones coming through with -- relative to the Apadaz collaboration?

There is an early milestone that is possible this year.

I can't tell you with certainty when that would come in.

But there is an initial milestone that we had outlined in the original announcement of that deal that made a $2 million milestone payment, could be available at or around the lunch just depending on how that goes.

So again, the timing is a bit unknown at the moment, but we're pressing very hard to reach that.

(Operator Instructions) Our next question is from Esther Rajavelu with Oppenheimer.

This is [Henry] for Esther.

So first of all, I just want to reconfirm with you guys about the R&D spending trend over -- I mean, over each quarter of 2019.

And secondly for, assuming you would continue to get funding from Lincoln Park Capital, how long do you think that capital will be lasting?

Yes.

So as we look at this -- the R&D spending trend for '18, you could tell that it was certainly up compared to '17.

And we had a lot of work going on specific to KP415 with the efficacy trial, an ongoing safety trial that's continuing into this year.

But we'll wrap up likely in Q2.

So as we've done all this work to prepare for the NDA, and now as Travis just mentioned, we're doing a lot, I'll call it, less expensive work in terms of capital around the formulation and work for 484, and some of those studies won't actually begin until later in the year.

You're going to see a decline in the R&D spending just naturally because of the ebb and flow of that activity.

So I hope that helps there.

And I'm showing no further questions at this time, I would like to turn the call back over to Mr. Travis Mickle for any closing remarks.

Thanks, again, for your time today.

We will continue to provide updates on these important developments as soon as we can.

It certainly is a very exciting time here at KemPharm.

Thanks, everyone.

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

This does conclude today's program, and you may all disconnect.

Everyone, have a great day.