Zevra Therapeutics Inc (ZVRA) 2020 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the KemPharm First Quarter 2020 Corporate Update Call. (Operator Instructions)

Now I would like to turn the call to Jason Rando.

Good afternoon, and thank you for joining our call today to discuss KemPharm's First Quarter 2020 Corporate and Financial 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 expectation. 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; and LaDuane Clifton, CFO. Following remarks, we will open the call to questions.

With that, it is my pleasure to introduce Travis.

Thank you, Jason, and thanks, everyone, for taking the time to be with us today. There are certainly a number of updates to provide, so I'll jump right into those. First, as many of you have seen, the KP415 NDA was accepted for review by the FDA on May 1. This acceptance triggered a $5 million payment obligation from our partner, GPC, as part of our license agreement, and I believe that at least some recognition of the relative importance of this milestone. We also announced that Corium, which is a GPC portfolio company, will be commercializing KP415 and eventually KP484. KemPharm actually has a long history with the Corium team, but I'll get more into that in a minute.

We're also happy to report our third consecutive quarter with development services revenue from our partners, GPC and Corium. I think this is an underappreciated aspect of our partnership, but certainly one that highlights the value that KemPharm brings to the table. As is the case and will be until approval, our cash reserves will remain skinny as we aggressively manage revenue expenses as well as balancing with risks as with any potential financing needs. The goal ultimately is to address the company's needs in the most balanced fashion available to us. You can see that this has led to the position where we've addressed our debt in the near-term and brought in additional revenue that has pushed our forecast out past the potential PDUFA date for KP415.

As some of you may be not as familiar with the whole KemPharm story, there are just a few slides here that I'd like to run through quickly as a little bit of a background. First, I wanted to remind our listeners today of the general terms of the license agreement with GPC and Corium.

In short, this is a development and collaboration agreement. We work closely with both GPC and Corium with the common goals of an improved KP415 product, with the best possible label, the desired label, and the maximum market opportunity. They believe, as we do, that those goals are very achievable. After the $5 million acceptance payment, the next potential milestone is at approval, and the size of that milestone will ultimately depend on the label itself. Additionally, I do believe that there has been a general misconception that the economics of this license are entirely back-end loaded. As you can see for yourself, that is not the case. While we cannot always provide all the details, this agreement in totality exceeds the potential value of the license that Shire signed originally for Vyvanse and is comparable within the first few years of each of those 2 agreements.

This partnership represents both long and short-term value for KemPharm in KP415, but also in KP484, the option products 879 and 922 as well as our support services and general strategic alignment with Corium. I certainly believe this has been vastly underestimated.

Turning now to our commercial partner, Corium. As stated earlier, we believe Corium has the exact right team and experience to make KP415 the commercial success we all believe it can be. Not only do they have the right team in place, but they're also captained by the right leader. I have known Perry for a while now, and we've both been very aware of each other's abilities and experiences for far longer than that. Needless to say, there's no one else I would trust to take on the responsibility of marketing KP415.

For some color, most of you are aware that Shire at one time had a row for -- on KP415 and while Perry was -- during that time, Perry was at Shire. And while we were upset that Perry departed Shire during the acquisition by Takeda, ultimately, we believe that it's been best for all of us. I hope that you can all see the whole story that has been presented here. KP415 has been viewed by many as the methylphenidate version of Vyvanse, now going to be commercialized by the very person who brought Vyvanse forward. I think Perry and I both believe it has some potential features that are even better than that Vyvanse version. At some point in the coming months, we hope to provide a forum for you to hear that directly from him. Stay tuned for more on that.

Turning now just a quick few slides on KP415 and the ADHD market. We have stated for some time now that our market research had indicated to us that there's a number of unmet needs in this very large opportunity with not just methylphenidate-based products, but ADHD as a whole. And mainly, those are focused on duration of action, onset of action and the possibility for abuse.

If you look now to the next slide with KP415, specifically, we believe we addressed all of those. Now if you do a comparison and look at this versus Vyvanse, Vyvanse had nice duration of action, goes out to 13 hours for kids and -- but doesn't come on till 1.5 hour and has what's been viewed as a lower potential for abuse. Now with that, you may recall that KP415 actually brings forward a slightly improved onset of action, but now in the methylphenidate-based products. The previous slide highlighted that this is predominantly a product that may be introduced predominantly in pediatric patients. So that's where, again, our focus has been, to initially improve upon those methylphenidate products, but also have some benefits above and beyond with that with Vyvanse.

If you look for KP484, while KP415 is the left-hand to Vyvanse's right-hand, KP484 is very much the left-hand to Mydayis, which was the Shire launched product that Perry was actually a part of while he was at Shire. But in this case, we have a different overall profile as well as the potential for less abuse now with the prodrug being a predominant component of that product.

Going to turn now away from KP415 in the partnership and look forward to some of the things that we've been working on, primarily with the Deerfield discovery collaboration that we announced back when the debt was restructured. We were, again, focused here on a potential collaboration with our largest debt holder and long-term financial partner Deerfield to discover up to 2 new prodrugs. These early collaborations have the potential to add value at multiple stages including covering R&D costs, licenses with milestones and royalties and other business development opportunities. We look forward to working with Deerfield to build out these collaborations, and provide more updates in the future as they get moving along on their time lines.

Looking also now at APADAZ, we can turn over our attention now with another commercial partner, KVK. They've made some very good progress in a very difficult opioid environment. As you're all well aware, opioids have been heavily scrutinized and everyone from patients to manufacturers have come under intense pressure, whether that be through litigation or economic or otherwise. In spite of that, I'm happy to pass along that KVK has informed us that APADAZ is available nationally to stock, that 19 states have added the authorized generic form of APADAZ to their Medicaid preferred drug list and that we now are located on the FSS. We also generally have seen availability for commercial access, even as much as a Tier 1 generic comparable to hydrocodone acetaminophen. Certainly, a remarkable set of progress.

With all that, we are looking forward to the next steps of working with KVK to commercialize APADAZ. We both remain very positive about the prospects in spite of the environment, and we will continue to pass along updates as they happen.

With that, I believe I'm going to return the discussion to LaDuane.

Thank you, Travis, and good afternoon, everyone. For Q1 of '21, we reported -- excuse me, of '20 this quarter, we reported $2.1 million in services revenue as compared to Q4 2019 revenue of $1.4 million. As Travis mentioned, this is KemPharm's third sequential quarter of reporting revenue, and we expect this trend to continue as we continue to work with our partners on the development of KP415 and our other product candidates. We reported a net loss of $5.8 million or $0.12 per basic and diluted share for the quarter. This is a significant improvement compared to the Q1 2019 net loss of $12.3 million or $0.46 per basic and diluted share.

Over the past year, we have undertaken a number of measures to improve our financial position including a 30% -- 36% reduction in our workforce as well as other G&A cost reductions, shifting development costs to our partners and adding services revenue. Considering that net loss includes a number of noncash items, such as interest expense accruing to principal of $2.2 million, nonrecurring severance expense of $800,000 and stock compensation expense of $600,000 during the quarter, you can see that we have made substantial progress in improving our financial position.

Turning to the balance sheet. As of March 31, 2020, we had total cash of $2.5 million, which was a decrease of about $1.1 million compared to December 31, 2019. I'm glad to report that based on our current operating forecast, along with the expected revenues and our existing resources, our cash runway is expected to extend past the potential PDUFA date for KP415 and up to the debt maturity date of March 31, 2020. We expect that our cash burn rate will be approximately $1 million per quarter, but we're working to reduce that as much as we can.

As of March 31, total debt was $68.6 million, which was a decrease of $8.7 million compared to December 31, 2019, which at that point was $77.3 million. This was directly due to Deerfield exchanging under their exchange agreement, which was part of the December 2019 transactions. They exchanged $9.6 million worth of principal and that was offset by interest added to principal of about $900,000. As of the end of Q1, Deerfield still has approximately 10.4 million shares remaining under their exchange agreement.

Lincoln Park Capital, the equity line of credit that we entered into during the quarter back in February of 2020, has also contributed to available resources. And as of the end of the quarter, March 31, 2020, we had received proceeds of $1.1 million for 4 million shares under that facility. There's still approximately 5 million shares remaining under the facility. And as we pointed out back when this was first put in place, we see this as sort of providing capital flexibility in the event that there is some timing delays or other unexpected items that could occur. As of May 11, we currently have 65.7 million shares outstanding.

And now I'll turn quickly and provide an update on our compliance with our NASDAQ listing. Today is May 12, and as of today, we have not yet regained compliance with the 2 listing requirements that are outstanding, both the market value of listed securities, commonly known as market cap, which is a minimum of $35 million or the bid price being a minimum of $1. NASDAQ back in April, in response to the COVID-19 crisis had actually announced that they were providing an extension to noncompliant issuers or companies. However, it was only specific to the public float requirement and the bid price requirement. Unfortunately, NASDAQ did not extend anything related to the market value of listed securities. And therefore, we maintain -- we are still under the requirement to reach a market cap of $35 million by tomorrow. So given where we are today, I believe it's unlikely that NASDAQ would give an extension. And in fact, we expect to receive a delist determination.

However, if this occurs or when this occurs, we intend to list our securities as soon as possible on the OTC venture market or OTCQB, and we expect that we'll be able to do that in a way that minimizes disruption, if there's any at all, in the trading of our securities. Obviously, the core business, as Travis and I have been discussing, is not affected directly by this change, and we hope to see that there continues to be solid trading execution in our securities.

And so with that, I'll turn back to Travis.

Thanks, LaDuane. So as we look ahead, now that the NDA acceptance is behind us and look forward to the potential PDUFA in March of 2021, there's a lot of work in front of us. We'll certainly let you know what the exact date is once the FDA confirms it. We received that actually in a Day 74 letter, which we don't expect to get until later this week.

We will continue along the way to support the approval of KP415 as well as work closely with Corium on commercial supply and launch. They are ramping up a full sales and marketing organization, and we are prepared and ready to support their needs at any point. As I mentioned previously, we do hope to provide an update directly from Corium on the KP415 opportunity in ADHD market. I suspect within -- currently jumping in with both feet, to get everything up to speed. And the current kind of COVID environment that we are experiencing, this may not be until later this year, not something that we view would be imminent. But at this time, this is just my best guess.

I mentioned upfront the need to balance risk, cash and dilution. We believe by managing those factors closely, we have mitigated risks related to potential factors outside our control, like the NDA filing timing that was delayed from what we had thought, any potential acceptance risks and the factors that we're currently all experiencing related to the COVID virus as well as market conditions. As we plan ahead, we look to be able to open this resource up and look towards our milestones and potential revenue as positive factors in that direction.

With that, we're not blind to the issues in front of us and with the NDA acceptance behind us, we can now look and take time to start to address the Phase 2 of our debt restructure. There are multiple options available to us, and we hope to have something in place prior to or close to PDUFA. We should all consider that market factors and our partners will certainly play a big role in ultimately what that timing will be and what the ultimate structure will be.

Looking beyond KP415, Corium is currently evaluating the full potential of KP415 as well as KP484 and the option products. KP415 has a far greater potential when we think about how and who could use a product like this and what would -- we could add to it with Corium to optimize those opportunities. As highlighted previously, we're also looking forward to the potential for discovery collaborations and the next stage in the launch of APADAZ. All of these are developing stories that could bring near-term and long-term value to KemPharm.

All in all, while I can certainly acknowledge the remaining risk to the business, the value from the partners we have brought in and the products we can develop, have and can develop, present a very compelling value proposition. It all helps to say that with some degree of confidence, when you have a $500 million-plus deal in a huge market with the absolute right partner, you have APADAZ potential upside, other valuable assets that you can add to all of it as well as the team that can add even more.

So that actually concludes my part of this, I would like to open up for questions.

(Operator Instructions) And our first question is from Oren Livnat with H.C. Wainwright.

Congrats on that long-awaited NDA filing. I have a few questions. First of all, you've highlighted, as have I, several times that people are missing, I guess, the relevance of Corium in the ADHD space, given their history and the current makeup. And I'm just -- and you pointed to the fact that they probably will have some kind of coming out party before the PDUFA. But is there anything holding you and them back now about talking more about this asset?

There hasn't been a ton of innovation in this space. And I'm just wondering, is it for competitive reasons that we're not talking about this asset more publicly yet that they aren't or are we waiting to see this label? And I have a couple of follow-ups.

No. Yes, we're certainly not going to wait to see the label. I think they fully believe, as we do, that the label is going to be what we've said all along it's going to be, with the onset and duration and abuse features that we have seen in our clinical studies. Really, it's been multiple factors here. I think until the NDA was accepted, this was really managed by GPC, which is kind of the mother ship as it were to Corium. And so Corium is now the official -- has the official handoff. They're now the commercial partner. And it's going to take them some time to evaluate all the different opportunities.

They're very familiar with ADHD. But until recently, we couldn't even announce that they would be the intended commercial partner. So we'd like to do it as soon as possible. I think they fully get what the value proposition is. We'd like to do it in the best form possible. And I think at this point, it's not the ultimate timing that both Corium and KemPharm would like to see for that discussion.

Okay. You mentioned that label, obviously, that's a huge issue. And I'm just curious, since you guys have been working for several extra months with GPC on this NDA, what sort of process have you guys pursued to maximize your chances of getting that best case onset and duration claim? Have you been conducting any other analyses? Did you submit data to the FDA that we haven't seen? Is there any color you can give us there?

No. We haven't submitted anything extra. We didn't do any additional analysis. It's really what everybody has seen publicly. Of course, that all has to be put in the context of the rest of the product and how it all makes sense for a potential approved product. And again, I think it did take a little bit longer for GPC to get their consultants up to speed and then get through all their subsequent reviews. Ultimately, it made the NDA better, but there really wasn't any additional work that was done. It was really already all baked into the data packages we provided and worked with them to formulate the NDA together on.

Okay. And just lastly, if I may, on that milestone for approval, clearly, it's going to be dependent on the labeling. Is there -- can you or have you ever given us bookends around that with regards to best and worst case?

I mean I can, but it'd be a little bit facetious because the $58 million is the most it could be for both KP415 and 484 and 0 is if you don't get approval, right? That's really the best we can do right now. As the things materialize and get closer, GPC has been more willing to allow us to kind of disclose more. We did that as well. Folks that had thought about the $10 million upfront, they didn't realize there was another $8 million that was actually paid out in reimbursements [or knowing] very well that typically organizations that receive upfronts, that money is intended to go for those additional fees, and anything that the organization would need to pass through.

So in this particular case, I think it didn't show the full story. Really, to date, we've had $23 million roughly of reimbursements and milestones, and there's more to come that's not subject to that restriction. So we certainly think that there's better economics here for us, then people can really appreciate the face value.

And now I would like to turn the call back to Travis Mickle for his final remarks.

I just want to thank all of you again for your time today, and greatly appreciate your continued patience and support. We will continue to press forward to optimize the value of these agreements and address our issues as judiciously as possible. Thanks again.

And thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.