Zevra Therapeutics Inc (ZVRA) 2021 Q2 法說會逐字稿

Good day and thank you for standing by. Welcome to the KemPharm Second Quarter 2021 Results Conference Call. (Operator Instructions) I'd now like to hand the conference over to your speaker today, Jason Rando, with Tiberend Strategic Advisors. Please go ahead.

Good afternoon, and thank you for joining our call today to discuss KemPharm's second quarter 2021 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 KemPharm's filings with the SEC, which are available on KemPharm's website under the Investor Relations section.

Speaking on today's call will be Travis Mickle, KemPharm's President and CEO; and LaDuane Clifton, CFO. Following remarks, there will be a question-and-answer session, which will include responses to questions that were submitted during the past week.

With that, it is my pleasure to introduce Travis.

Thanks, Jason, and thanks, everyone, for joining this afternoon. We'll start with some recent highlights. Many of you are already aware of most of these, but I'd like to run through them very briefly.

Of course, most of you are aware that AZSTARYS, our lead ADHD product that was approved back in March, was launched commercially on July 21. A very exciting milestone for us. Our partner, Corium, announced that launch, and we are excited to see how that progresses. We do expect to see royalties and sales milestones in 2022 and beyond. But as you'll hear in a further update, that is probably the extent of any sort of projection that we can give at this time.

Just as you may recall, the royalty rates on U.S. sales go from the high single digits up to the mid-20s and our AZSTARYS patents run until 2037. So sitting here in 2021 with a product that just launched, now we have a 16-year product life, just a tremendous opportunity in front of us for AZSTARYS.

We also heard in the second quarter, received notice that the DEA did take a recommendation from the FDA as to schedule SDX or serdexmethylphenidate as a Schedule IV controlled substance. All methylphenidate products right now are Schedule II. This is the only methylphenidate containing product that is a Schedule IV.

It is remarkably beneficial. It means it has a lower potential for abuse when compared to other d-methylphenidate products and in fact, lower than a Schedule III product, and it's a key differentiator for AZSTARYS. Not only that, it's also a key value proposition for our other SDX-based product candidates.

I'd be happy to report and LaDuane will give us all the great details. We have a healthy balance sheet. We also have net income. So he'll get to talk about that shortly. Of course, that was the combination of the warrant transaction, which he'll explain in more detail as well as the regulatory milestones received in the second quarter.

And then we are excited to think about the future, especially beyond AZSTARYS. It's great to have sales rolling in and royalties potential. At the same time, SDX holds many different avenues for us. And we do expect to have some clinical data prior to year-end with SDX. That is something that I will detail more in just a moment.

KVK Tech did pass along that they're preparing to expand the Sure Med collaboration for APADAZ. I know that's not a word you hear very often from our mouths anymore, but certainly, that's still ongoing. They're expanding that collaboration known as Perspectives in Care into additional regions. So we'll be excited to hear about any updates that they passed along to us.

So moving on. As I mentioned, extensively, the U.S. commercial launch of AZSTARYS is well underway. We are excited about the product. So it's Corium. If you have a chance, please visit the website. You can learn more about the product, also some of the promotional and sales-based tactics that Corium is undertaking for the product, primarily all around the label differentiation related to AZSTARYS.

So if you remember or recall, those various label elements include how the product is administered. It can be taken with or without food. It can be opened up and sprinkled on apple sauce or in water. There was no changes in height and weight over time that were clinically meaningful. The pharmacokinetics of the product is very smooth. We have an early peak early in the morning, and then it tends to gradually decrease throughout the day. And the efficacy data does show that, that you have this very early onset through a long duration through the entirety of the day.

All of that, combined with the fact that this product had 70% SDX, which is also, as I mentioned, a Control IV controlled substance makes this really a completely different type of product when we talk about methylphenidate and what is available today.

Corium did provide us some commercialization updates that we're going to pass along. I will caution everyone, this is very early days. In those particular instances, it will be a slow road. We'll have to be patient to see how these types of products will launch. It's initially going to be a focused launch in just a few states with select prescribers. And that's really due to a number of different factors. And mainly, I believe that's all around the fact that you don't have payer coverage.

In many cases, large payers and a lot of payers will actually block the product from being reimbursed initially for about a 6-month period of time as seen by industry-wide standards. So any new product, it didn't matter if it's AZSTARYS or something for blood pressure or something for oncology, it's going to see the initial NDC block until a payer has the chance to review it and discuss with the company any potential contracts that need to be placed in front of it.

We have heard from Corium that some of the payers have indicated some initial receptivity to AZSTARYS just given its differentiation. Many times, when you hear that feedback, payers are worried that they're going to have to actually pay a large amount and would like to discuss contracting for the product.

And then we have heard from Corium that when payer access opens up, when the current COVID environment opens up as well as they're starting to get some initial velocity, that, that launch will expand. It will become a national launch with more sales folks. And I think this is a perfect strategy. Don't oversell it. Don't have physicians write a bunch of scripts that don't get filled, because they get stopped at the payer side.

So they certainly know exactly what they're doing. I think they have all the resources in place, and we are excited to see them take this forward. As you may be aware, based on that label, we did update our internal forecast, and this really was the basis for the amendment that we did to the license agreement with Commave, which is an affiliate of GPC back in April.

Moving on briefly here to the serdex or SDX opportunity. Certainly, there's a number of different features here, and I've rattled on and on about this, the C4 scheduling. But also it's the unique profile of the pure prodrug that provides us a real opportunity. So you have this lower usability potential as well as this pharmacokinetic profile. And the fact that you can't just swap it in for other methylphenidates gives us a unique chance to really capitalize on the molecule.

And so we recently initiated a trial with SDX. We did so under the KP879 IND. I'm not calling this product 879 for a very good reason, is that this study itself was designed to tell us a lot more about SDX than just what it could do for a stimulant use disorder. So we're exploring the pharmacokinetics at high doses as well as the safety and some of the exploratory effects. So this would be like side effects related to abusability and/or wakefulness, side effects that may come with a methylphenidate product.

And some of the reasons why we haven't really announced the initiation of the study, primarily because I can't tell you exactly when it's going to end. I heard everything from first quarter last year or next year to third quarter this year. And it's somewhere -- it's going to be somewhere between that.

We really do believe it's going to be prior to year-end. It's a difficult sort of trial to enroll for. We're looking at people with a history of stimulant use -- significant stimulant abuse, almost to the point of addiction. And so we really need to keep those individuals, which they're not the most reliable individuals from that perspective.

We're going to use the clinical data from the study to decide what the future is for the program. Is it going to be primarily in stimulant use disorder? Is it going to be used for idiopathic hypersomnia, the product 1077 that we announced last year as a potential or others? There's a number of different other indications.

We want to pick the right one that has the right market conditions as well as the best opportunity for that product to do well. And one that won't cannibalize itself where you can do a little bit too much with the same molecule.

So now that I run through that, I'm going to turn it over to LaDuane to provide you with a financial update. LaDuane?

Thank you, Travis, and good afternoon. For Q2 2021, we reported revenue of $12 million for this quarter. That's comprised of the $10 million milestone payment for the DEA scheduling of SDX as well as the continuing service fee revenue of about $2 million, which we recorded for the period. That led us to have net income of $6.2 million or $0.18 per basic share. And that's really a great thing to see us continuing to have a consistency in revenue and allowing us to bring in and have this income.

Income -- operating income for the quarter, it's good to note that it included almost $1 million from the forgiveness of the PPP loan that did take place officially during Q2. And then one other thing I'd like to point out is when you see our 10-Q, you'll notice that we do have a net loss attributable to common stockholders, and it's driven by a noncash deemed dividend.

You may have seen this in our prior results. And I mentioned -- just to tell you, this is not a cash dividend that was given to anyone. Rather, it's really just the method of accounting for the warrant exercise inducement transaction. So just trying to call it out to make sure there's no confusion there. There was -- this is a noncash item.

Operating income, of course, during the period was driven by the increase in revenue as well as sort of a modest increase in operating expense. And as Travis mentioned, you'll notice R&D expenses did increase compared to the prior year quarter, and that really was related to the initiation of these trials connected to the SDX products.

Our balance sheet also continues to be very strong. And as of June 31, we're pleased to report that we had $132 million in cash and equivalents. That's an increase of $56 million compared to the March 31 quarter end. And we received the $20 million in cash milestones both from the approval and from the DEA scheduling that were both received during Q2. And then, of course, we also brought in the proceeds of about $40 million from the warrant exercises.

As you know, the warrant exercise inducement transaction we did in June brought in gross proceeds of, the bulk of that, of $39 million. And that was really an exercise of warrants that were already outstanding. And so we essentially converted those warrants into cash on the balance sheet. And we did issue a small amount of inducement warrants. And -- but those have an exercise price of $16.50, so really a higher price, which indicates what we believe is where we're headed.

As of June 30, a lot of folks have been curious about exactly how many common shares outstanding. And so we're right at 34 million, almost 35 million common shares outstanding, and we have 46.5 million shares fully diluted. And that includes about 4.6 million warrants outstanding. So a lot of folks have been curious about how many warrants remain outstanding.

KemPharm certainly has a solid financial position where we stand right now. And as you know and many of you have followed, we have completely restructured and recapitalized our balance sheet. This not only provides for operating requirements, but it also allows us to look at how to allocate resources towards our internal development opportunities, and we also can look at other potential external investments and see.

For now, our cash burn rate remains at $1 million to $1.5 million per quarter. But obviously, as we make some of those strategic decisions around development opportunities, that will change the cash burn rate as we get those development plans in place.

Another item that we received a number of questions related to has been around the shelf registration that we completed, which was just after the end of the quarter but still certainly inside the area of interest here. It's important to note that we actually had an S-3 previously. So this was really -- we just increased the size of the S-3 to really be in line with what our new balance sheet looks like.

And so certainly, keeping and maintaining a shelf registration on Form S-3 is very much a housekeeping step. I would say there are no immediate needs, but it's available if strategically appropriate in the future. So that's just there. And like many companies, it sits there and it's ready to go if it were needed.

Similarly, the ATM agreement that we entered into is very much a tool that's reserved for opportunistic use only. Again, this is a tool that many companies use. And similarly, we've also had an ATM in place in the past. So really nothing new here in terms of a strategy for having the tools in the toolbox so that we can be nimble if the right deal comes along or the right opportunity, whatever the case may be.

Taken all together, our goal through all of these steps, including all of the restructuring steps, has been to provide for an extended cash runway as well as to enable greater operating flexibility and greater strategic flexibility. If you're in the process and you're looking for opportunities, whether -- whatever that might look like, it's important to note -- you need to sit at the table and be a credible party in terms of your ability to close the deal. And similarly, timing, sometimes if you have a strong balance sheet or these tools in place, having them in place facilitates the timing so that when the right deal comes along, you're ready to act.

So hopefully, that explains -- and we'll certainly entertain more of your questions, but trying to provide some insight into a lot of these moves we've made over the last several months.

I'll turn it back to you, Travis.

Yes. Thanks, LaDuane. And certainly, some questions that we have seen may highlight those as well, but I appreciate the update.

So now looking forward to what we plan to do here at KemPharm. Of course, we're going to be watching intently the AZSTARYS rollout. Corium is certainly in the driver's seat here. They do provide us updates, and we will pass along anything they allow us to say.

We do know that there have been just a handful of scripts, but that is mainly an issue related to this early, early launch days. The fact that it's not a national launch too, you should be aware. It means that the tracking of these scripts is somewhat spotty. It's difficult for some of these places like IQVIA and Symphony to record through their databases sales when it's not a national rollout.

We continue to provide support for AZSTARYS with the consulting agreement that we have related to manufacturing, scientific and regulatory affairs. That will continue at least through the agreement itself, which ends in March of next year. And certainly, as I mentioned, we expect royalties and sales milestones in '22 and beyond.

We talked briefly about the opportunity with SDX. We're going to have data here. We're going to be able to provide some insights into what happens with this molecule at higher doses and how could this benefit various patient populations and disease states. And so we can't wait to actually provide that future direction for that product.

LaDuane just updated the improved financial position. This is really to put us in a great place to execute on a strategic vision. It's the first time in our existence. Not only are we looking at our internal pipeline, what we have and haven't even announced, we're also looking external to KemPharm.

And so we hope to provide an overview of this in the near future. But at this point, we know that we're in a great place. We have a great balance sheet. We have all the tools in the toolbox to be able to execute should the need arise, the desire arise and should the strategy -- be able to grow KemPharm in a meaningful way in the future.

And so that is our goal right now, is to finalize that plan, that strategic vision, to finalize the SDX development plan and then, of course, present those to the shareholders, investors of KemPharm. I really look forward to that day when we'll be able to highlight all that hard work we've done over the last few months.

So with that, I'm actually going to start some of the questions, and LaDuane is going to be kind of our emcee for this session. Some of them are passed along, of course, to analysts and as well as many of you individual shareholders.

Yes. Thank you, Travis, and thank you, everyone that submitted a question. We received quite a few. And what we've done is tried to group them into questions that really encompass the nature of everything that was sent in. So we appreciate it.

So we'll get started. The first question is from Jonathan Aschoff, the analyst from ROTH. He asks, can you please help me understand ballpark pricing per prescription of AZSTARYS and how long a prescription lasts? And further, how does that compare to other branded drugs in the space, notably Vyvanse?

So with this particular question, I can actually say the WAC price for AZSTARYS has been set at $17.90 -- $12.90, sorry. Thanks for waking me up there. $12.90 per capsule, 30-day supply being $387. That's a 30-day script. So this is still a C2 product, still controlled substance, and it's limited to a 30-day supply for AZSTARYS.

Now comparability, I can't say 100%. I know Vyvanse, it somewhere right now has a WAC price in the $12 range. This is a slight premium above that, but certainly in line with other branded products like Vyvanse as well as from what I can see for WAC prices for branded Concerta and Focalin XR are in the teens, the low teens, depending on what prices you're looking at. So certainly, in line with everything from the branded perspective.

The next question from Jonathan as well, has there been a material acceleration in the development of KP879 given the favorable DEA scheduling as a C4?

I mean we always -- KemPharm go as fast as we can on everything. So in this particular instance, yes, there has been. It's not KP879 per se. It may be. What we're doing is the SDX study that I've already described, and we're doing it as quickly as possible.

It says by year-end, we hope that's actually not by year-end, it's much faster. I can't guarantee any of it as you heard me say before, but we are moving that program or programs ahead as quickly as possible.

Well, it seems, Travis, that the C4 really opens our mind to other possibilities with the SDX-based candidate. So that's also part of that evaluation, I would assume?

It is.

Okay. And the last question from Jonathan, are you actively engaged in a potential product acquisition? And if so, can you shed any light on progress there?

As part of our assessment of the strategy, yes, we are looking at potentially acquiring other products. Are we actively engaged in looking at other products? Only at a cursory level. At this point, the strategy hasn't been fully formed. We need to know what we're going to develop internally, what resources need to be applied there. I'd say that we're not far from making that decision. So good question and a timely -- very timely.

Okay, great. The next question comes from an investor. It says, can KemPharm update investors about the AZSTARYS launch, PBM approvals, the competition and the milestones associated with AZSTARYS sales?

I think that's been addressed already to the best of our ability. We can't disclose the details of the license agreement as far as the economics. We've said that royalties are separate from the sales-based milestones. I think that's very important for everybody to understand. Royalties are on top of. That goes from the high single digits to the mid-20s -- on the higher end of the mid-20s. And then as well, the sales milestones, we did improve and add some early ones, basically taking the other 20-plus million that was due with the label and moving some of that out and then increasing the size of both early and late-stage milestones.

Yes. There was actually a related question. We've seen this indicate some infusion between -- when we describe the license amendment, we recognized that there was up to $590 million worth of sales-related milestones. And some folks have been confused as that represent a cap on royalties. And I would just say, no, it's not. Royalties are separate and distinct from sales-related milestones.

And so to be clear, we received royalties on net sales. That means for the few prescriptions that have already been gone through the system, we've already earned certain amount of money, which we can't tell you yet. We don't know, but we technically have earned royalty on the first dollar, and that's independent of the sales milestone. As sales accumulate then toward each of the sales thresholds, you would receive and be earning those milestones independently. So hopefully, that clears that question up for folks.

So there is one bucket, the sales milestone that has a cap in discrete -- in dollar amounts when you reach certain milestones. And then there's another bucket for royalties that's infinite. We can keep just pouring in the money on that side. So hopefully, that clears everything up.

The next quote question, have there been any APADAZ sales or milestones received? And I can take this question, Travis.

We did report out that KVK indicated to us that they had entered into the pilot program initially launched in Alabama, which was really a small subset or a group of physicians in that area. And now they've reported that they want to expand that.

So I think we're not able to provide you with the exact sales. But I will say, there has been products sold into that pilot program. But of its design, it's small. And so we have not yet attained any of the sales milestones under that agreement. However, I believe it's promising that KVK is glad to or preparing to expand that program into other regions of the U.S. So we'll continue to track that. But by its nature, a pilot probably wasn't going to generate a lot to start with.

The next question is, since KemPharm is financially strong, can you discuss the need for a warrant exchange, an ATM, a shelf offering? And would these vehicles drive further dilution?

I guess that's another one for me, Travis. We've tried to address this in the presentation a few minutes ago in my comments. You're right in the sense that when is -- we do have a strong balance sheet, and we did a lot to get us to that point.

And so why do these things? I would just reiterate what I've already said, which is we needed to have the tools and the credibility so that now we have greater operating flexibility and maybe even more importantly, greater strategic flexibility. An ATM or shelf offering, as we said, technically speaking, of course, it is further dilution. But what I'd rather think of it as it enables further value creation.

And if we utilize those tools from that express purpose to create value, then the issuance of shares is actually expanding the potential of KemPharm and the valuation. So I think that, that's what we have in mind as many companies do. So I hope all of our answers together on this help you understand better. But that's -- I guess, Travis, do you have anything to add to that?

Well, I think I'd just balance that is -- on the other side, if the need does not present itself, we may still create value and build upon the strategy. But if the need does not present itself, there will be no utilization of the shelf or the ATM. There is -- as the statement says, there's a healthy balance sheet. There's no need for it at this given moment.

You would only do so in those instances in which the companies make the decision that there could be far more value garnered out of, say, the acquisition or a license of an external asset or a company. And in that case, you would want to keep your cash reserves, if possible, in order to be able to execute on whatever you needed to at that point, further development, additional technology investment, again, all to raise ultimately stock price and market cap for the company.

Okay. So the next question is another one for me, I'm afraid. How many outstanding warrants are there now?

So I like the easy questions. And of course, I did address this in the presentation. About 4.6 million warrants remain outstanding. Those are different price points as we've described. Most of those are at the $6.50 range, about 1.5 million or at $16.50. So you have the full details on that.

The next question is, have the employee stock options been priced? If not, what is the delay? And Travis, I believe they're referring to where, during the Annual Meeting, stockholders approved an amendment to the employee incentive plan. So I guess would you like to take that one or...

Yes, I'll start, and you can fill in the rest of the details. I do want to again thank everyone for supporting that effort to get that plan approved. Once that plan was approved, though, there is a process in which the Board and the Compensation Committee and management have to work together in order to use an analysis that we detailed extensively in the proxy as to make sure that we are, again, using fair practice and assessing how much of those should be disbursed at what value, of course, and what point of time.

None of that comes quickly. That's just the process you have to go through. And when that process is complete, the individuals who receive those options to purchase shares at whatever price of that day that they were issued, correct? LaDuane, did I kind of drag that together a little bit?

No, well said. And I would just say 2021 is a little bit of an anomaly because we typically have an annual process that we go through, just what Travis described. And if you go back, you'll see that -- you'll see primarily Form 4s or option grants are filed in the February, March time frame, commensurate with that annual process.

This year was a little different because we did need to amend the plan and sort of, again, all related to our balance sheet restructuring, try to sort of rightsize that plan. It is a 10-year plan. And so as we look at that analysis, this isn't -- go issue them all at one time. Rather, it's a methodical 10-year plan designed to create long-term incentives for employees. And so that's all part of the analysis that Travis described.

The next question is for you, Travis. Can you discuss the status of the current pipeline? And they specifically note KP484 and KP879. What is next? And does KemPharm intend to in-license other assets?

Sure. I think we've addressed all that, but I think it's a nice way to kind of wrap it all up with a bow. The answer to all of that is yes. We are looking at external opportunities. And as our strategy will evolve over the next few weeks and months, we'll be able to detail that more.

It's not just external opportunities, it's also internal opportunities. So we want to prioritize what we do with SDX primarily. That is our highest value asset. It's the most advanced in the clinic. It's already 70% to have an approved product. So we've done a lot of work already. So that makes sense to put in a very calculated investment. But let's do so knowing that our next step could be the most valuable step for the company, even beyond what AZSTARYS has shown.

We'll be looking at our own preclinical library of compounds. Where do they fit with that new indication with what we want to move SDX forward with? And how do they fit with an external opportunity if we're fortunate enough to find something that makes sense?

So all of that is right now being contemplated, built, worked on in order to be able to create, again, a KemPharm that doesn't exist today, didn't exist 5 years ago, didn't exist when I started, which is really the ability to become a multibillion dollar company developing across a range of products and perhaps, one day, commercializing those.

The next question is for me, it sounds like. Is the current burn rate a good metric? Or will it increase as you develop additional products?

And so I did address this too. Our current burn rate remains at this $1 million to $1.5 million per quarter cash burn rate, and I do continue to see that. But as we go through the process that Travis has described, and we make those final decisions and decide which products to bring forward or whatever that may be, as Travis mentioned, you can expect that the burn rate would increase.

And if you go back to other years, for example, 2018, where you saw R&D spending at a much different level, that's because we were actively working through the development of KP415, now AZSTARYS. So that is -- it will increase. But at this point, I can't predict when that is because it's dependent upon all the good work that Travis just described.

And then actually, the last question for today's call, Travis, someone asks, the stock valuation has moved since the approval and DEA scheduling. Why do you think it has not improved?

I think there are several factors. Number one, I didn't turn my dial up for the stock price right away. Sorry about that. That's a horrible joke. Again, we have no control sometimes. These are just macro issues that occur.

I think from where we sit, there was probably some concern over some of these financial tools and maybe a misunderstanding or miscommunication, whatever it may be, as well as just when is AZSTARYS going to be launched? We couldn't say anything until it was actually launched, and that was because of the confidentiality agreement we have with Corium.

But looking at our peer group, so these are other companies in similar stages, KemPharm working on molecules that are similar to us, products that are, say, just commercialized or next -- will be commercialized shortly. Our entire peer group since about mid-June is also down significantly. So I believe there's some sort of macro force here that is at play, and money is just moving out of this particular sector.

So while it's unfortunate to see a short-term stock change for no apparent reason, it is not -- everybody in that space has seen the same thing without any negative news and certainly nothing of concern for the organization. Again, we are focused on long-term value. We're focused on what we can do to change the fortunes. We'd be fortunate to be here. There are fortunes today and making even more for tomorrow. So that will be our goal, has been our goal since the creation of our company and when we went public.

So I think that covers it, LaDuane. Do you have anything else to add?

No. That's everything I was looking through and really, I think you've covered most of them. So thank you.

Yes. No, we appreciate the great questions. This format may change over time as we may receive additional analyst coverage. And so we would formalize it a little more, give everybody there an opportunity to speak and maybe take a couple of questions that were outside of that realm from our shareholders.

But we greatly appreciate all the interest, all the continued support, and we look forward to providing more updates as soon as we can. Thanks, everyone.

This concludes today's conference call. Thank you for participating, and you may now disconnect.