Kindred Biosciences, Inc.
Q4 2020 Earnings Call Transcript

Published: 16 Mar 2021

[Operator:]

Welcome to the Fourth Quarter and Full Year 2020 Financial Results Conference Call and Webcast for Kindred Biosciences. At this time, all participants have been placed on a listen-only mode. At the end of the prepared statements, participants will have the opportunity to ask questions. Please note that remarks made today will include forward-looking statements and that actual results could differ materially from those projected or implied in our forward-looking statements. For a description of important factors that could cause actual results to differ, we refer you to the forward-looking statements in today’s press release and a note on forward-looking statements in the company’s SEC filings.

[Richard Chin:]

Thank you, operator. Good afternoon, and welcome to our fourth quarter and full year 2020 financial results call. Joining me today from the management team of KindredBio are Wendy Wee, our CFO; and Katja Buhrer, our VP of Corporate Development and Investor Relations. We are thrilled with our progress in the fourth quarter and in 2020 in general. We made excellent headway across our pipeline, including the initiation of the pivotal study for tirnovetmab and positive results on our inflammatory bowel disease program. We also signed a partnership agreement with Elanco for our parvovirus antibody and expanded our manufacturing agreement with Vaxart. The successes in 2020 have set us up well for 2021 and we expect this year to be a better year for KindredBio. Let me start with an update on our dermatitis franchise. We initiated the pivotal study for tirnovetmab in December of last year. It's too soon to tell how quickly it will enroll and our expectation that the study will take 12 to 18 months to complete hasn't changed. This is one of our flagship product candidates. And given that the canine dermatitis market has grown to nearly $1 billion a year, we would expect tirnovetmab to be extremely successful. In addition, we are advancing our other candidates for dermatitis nicely, including our IL-4 receptor antibody. As a reminder, IL-4 our antibody targets the underlying disease itself instead of just the symptoms. So it could potentially have significant advantages over certain available therapies. We believe we have one of the broadest and most advanced dermatitis pipelines in the industry, including several molecules that have not had been disclosed. We have already incorporated our Half Life Extension technology into our dermatitis pipeline, and think long-acting molecules have the potential to be best-in-class and possibly market leaders. With the exception of the current incumbent, we estimate that we are ahead of our competition in this field, and we expect to be next to market with a molecule for this indication. So, we're very excited about our highly promising dermatitis pipeline. Turning to the parvovirus program, we have reported compelling results from the prophylaxis pivotal study. The treatment pivotal study has been delayed longer than expected, but we expect results in the near future. We believe that this antibody has the potential to revolutionize the care of dogs and puppies with this devastating condition. There's a lot of excitement both within the company and outside about this program, which offers hope for what is a terrible and currently untreatable disease.

[Wendy Wee:]

Thanks, Richard. The strategic actions we took in 2020 to streamline our operations reduce operating expenditures and prioritize investment in our highest value biologics position us for future success. We begin 2021 with the right operational footprint, business model and extended cash runway to see our promising late stage programs through the final stages of development. Turning to our financials, for the fourth quarter, we reported a net loss of $10.9 million or $0.28 per share, compared to a net loss of $15.7 million or $0.40 per share for the same period in 2019. For the full year, the net - loss was $21.8 million or $0.55 per share, as compared to a net loss of $61.4 million or $1.59 per share in 2019. The variance relates to proceeds from the sale of Mirataz to Dechra, which was completed on April 15. Total revenues were $1 million for the quarter versus $1.4 million in the year ago period. Full year revenues were $42.2 million compared to $4.3 million in 2019. Here again, the biggest component of the variance in the full year result was due to $38.7 million from the sale of Mirataz. Substantially all of the $878,000 in product revenues for the year 2020 were for Mirataz. We recorded royalty revenue of $122,000 in the fourth quarter and $535,000 for the year. Our agreement with Vaxart for the manufacture of their oral vaccine candidate for COVID-19 resulted in contract manufacturing of $233,000 and $1.6 million based on the percentage completion of specific milestones for the three and 12-month periods. The agreement Elanco partnership provided KindredBio, a non-refundable upfront payment of $500,000, which was recorded as partner licensing revenue. Research and development expenses were broadly consistent in the fourth quarter, totaling $7.6 million versus $7.1 million for the same period in 2019. For the full year, R&D expenses were $31.3 million, compared to $28.3 million in 2019. As we have noted in prior quarters, the year-over-year increase primarily reflects the inclusion of Kansas facility expenditures in R&D, as it began to manufacture clinical trial material, partially offset by lower payroll and related costs consistent with the decision to discontinue small molecule development in favor of biologics programs.

[Richard Chin:]

Thank you, Wendy. Operator, we are ready for Q&A.

[Operator:]

Our first question comes from the line of Jon Block from Stifel. Your question, please.

[Jon Block:]

Great, thanks, guys. Good afternoon, maybe two or three from me, but Wendy I’ll start with sort of a guidance, the fully funded guidance until early 2023 is better than the prior. I think the language was mid 2022, the OpEx assumption seemingly did not change clearly you've had several positive announcement over the past few months with parvo, Elanco in contract manufacturing? But can you detail on what looks like maybe nine, you know three additional quarters or nine additional months of the company being fully funded? And maybe it's from that Vaxart. I thought Richard, you might have given a 20 some odd million dollar number there, but maybe Wendy if you could provide the details, that would be very helpful?

[Wendy Wee:]

Sure, it's naturally from our Vaxart revenue, and the partnership with Elanco. And also we have drawn down on a small portion of our ATM so that extended out cash runway.

[Jon Block:]

Okay, and I'm trying to figure that you did provide for Vaxart just to be clear, is that something that will come on board in the next 12 to 24 months or was that you know that revenue figure could extend well, beyond 2023? I'm just trying to get the timeframe for the 20 some odd million that you attributed to Vaxart?

[Wendy Wee:]

Yes, the $20.5 million is really to be recognized in the year 2021. That is our contract with Vaxart.

[Jon Block:]

Okay, great, that's great to hear. And then you know we’re attribute to pivot, for the business call it IL-31, you were very clear and look, we just started enrolling, it hasn't changed its 12 to 18 months. But maybe if you could furnish us with some thoughts on the updates that you from a company perspective, plan to provide along the way, as we think about 2021. What should we hear from Kindred Biosciences in terms of the timeline for IL-31? And how you're going to handle that with the street?

[Richard Chin:]

Yes, sure. I think in another quarter or so we'll have enough enrollment information that we could probably - we find that guidance. So as we get two, three more months of enrollment under our belt, it should become clear which way the enrollment is going.

[Jon Block:]

Okay. And last one from me, and then I'll follow-up offline. I believe Richard, when you were talking about, IBD, you mentioned, increased conviction that the market size could maybe even be as big as atopic derm. I mean atopic derm, is obviously one of the - the bigger success stories that we've had in the companion animal market. Can you talk to what, led you down that path and mentioned that? And why the increase conviction, if you would, that IBD could be such a material blockbuster? Thank you.

[Richard Chin:]

Absolutely, so obviously, we've been talking to additional veterinarians and customers. And as we've been analyzed the data we've realized, how impressive the data is. So if you look at the market, so atopic dermatitis is about - affects about 10% of dogs, inflammatory bowel disease, and diseases that are sort of in that similar category affects at least 5% or probably more than 5% of the dog. We think the impact on the quality of life is actually more significant for inflammatory bowel disease, because the dog is basically making a mess on the carpet. And there are a lot of parallels to the atopic dermatitis market. Right now, the mainstay is steroids, which is cheap, but has a lot of side effects, including making the dog pee on the carpet, and they become incontinent. And just like the atopic dermatitis market before the current therapies were launched, the veterinarians and owners had to make do with therapies that were either not effective or has a lot of side effects, the exact same situation in the case in IBD. So, if we bring out a drug that has similar well, that works quickly that works well. And it's very safe and we think that this could be another example of a market that goes from few 10s of millions of dollars to hundreds of million dollars very rapidly.

[Operator:]

And our next question comes from the line of Brooks O'Neil from Lake Street Capital. Your question, please.

[Brooks O'Neil:]

I'm curious Richard, if you would mind talking just a little bit about your sort of philosophy, as it relates to some of these next generations, next in the product line in the pipeline products in terms of partnering? Are you thinking A) that you want to pursue partnerships for these additional indications are you thinking it's more likely that you would continue to work with Elanco or do you think it might make sense to work with a variety of potential partners as you move those products forward?

[Richard Chin:]

Yes, so Elanco has been a great partner so far. We're working really well with them. So I could certainly envision partnering on other products with them. We do plan on partnering most of our products. And depending on the product, we may partner earlier or later, I think some products, the value is so apparent, early in the development that we could get attractive economics for those, some of the other ones, we may need to wait a little longer. So it will be on a case-by-case basis as to when we partner to depend on when we think we can get the best economics. Now I think what you're alluding to is, do we plan on having a multiproduct partnership with other companies. We haven’t approach about partnerships like that. Right now, we are focused on individual products, but certainly it all depends on the terms. So, we wouldn't rule that out.

[Brooks O'Neil:]

Okay, great. Thank you very much for that color. I was hoping Wendy might just give any color she would offer with regard to the pattern of spending - the quarterly pattern of spending that you might anticipate for 2021?

[Wendy Wee:]

Well, we do expect spending to be pretty consistent, typically the first quarter is generally higher than other quarters. But, we do expect it to be pretty consistent.

[Brooks O'Neil:]

Right, you don't see, you don't see spending on any of these trials, bumping up spending in any particular quarter, at least from where you sit right now?

[Wendy Wee:]

While we do expect parvovirus trial to be completed that's why I mentioned you know, we're expecting first quarter spending to be slightly higher.

[Brooks O'Neil:]

Yes.

[Wendy Wee:]

But than other quarters, but in general, the guidances $41 million to $43 million spending for the year.

[Brooks O'Neil:]

Okay got that, that's great. And then last from me, I'm just curious, as you guys think about the sources of non-dilutive financing, obviously, Jon asked you about the cash availability and the positive developments you've seen there. But as you think about non-dilutive financing, what do you see as your biggest opportunities in the next year or so?

[Richard Chin:]

Maybe I'll start the answer and Wendy feel free to add to it. Certainly, we expect additional revenues from partnerships, both milestones, and royalties. We expect to continue to build our contract manufacturing business, which as I said, is not our primary line of work. But right now we're in the fortunate situation that there's a lot of demand for biologics. So, and that between those two, we should be getting some additional funding you want to add to that Wendy?

[Wendy Wee:]

Though you basically identified, the main areas.

[Brooks O'Neil:]

Great and just one sort of follow-up to that, would you anticipate some of your contract manufacturing opportunities to be pet-related biologics or do you, are you pretty open minded about what the opportunities might be and that to take advantage of your capacity?

[Richard Chin:]

Yes, we definitely expect to have opportunities for pet biologics. In fact, as we have right of refusal for two of Elanco’s products.

[Brooks O'Neil:]

Sure.

[Richard Chin:]

In addition, the other companies are pursuing biologics manufacturing, and there's some start-ups looking at monoclonal in the veterinary space. Of course, there are many years behind us. We are very well positioned to manufacture biologics for veterinary companies. We have the plants. We've built up expertise in manufacturing for USDA. And that's different than manufacturing for FDA or EMA. So, we think we will probably be one of the partners of choice for manufacturing. In addition, we have potential customers for the human side. And certainly, we can do either one. So, I think we'll see a mix of both.

[Operator:]

Our next question comes from the line of Brandon Folkes from Cantor Fitzgerald. Your question, please.

[Brandon Folkes:]

Hi, thanks for taking my question and congratulations on all the progress during year. Maybe just one from me on KIND-030 and but the indication they're being pursued the prophylactic and therapeutic. If the therapeutic pivotal efficacy is successful, when you could elaborate on their regulatory strategy there, is this a label expansion post approval of the prophylactic an amendment to the current submission or completely different filing altogether? Thank you.

[Richard Chin:]

Sure. If the treatment study is not positive for some reason, and obviously, there's always some risk whenever you're doing clinical studies. We would launch with the prophylaxis indication or Elanco would. And the advantage of this molecule is that it's the same presentation, its same bio, which means that veterinarians would be free to use the drug for either indication. We would follow that up with a second approval. Because even if, for some reason one is trouble with the study, we would certainly repeat it because we know the molecule works for treatment. So I would anticipate the sales would still be quite attractive, because veterinarian’s most likely use the drug for both indications obviously, we would not be promoting for an unapproved use. So I think under that scenario, there would be some impact. But the impact would not be - may not be as great as you might otherwise think on revenues.

[Brandon Folkes:]

Thanks. And Richard maybe just, if you are successful in the therapeutic indication so what is the filing strategy just given that you've initiated the prophylactic filing? Are they two separate filings altogether or how should we think about sort of the timing of therapy, you’re being able to promote therapeutic - indication?

[Richard Chin:]

Yes, the clinical filing would be separate. But the manufacturing, part of the filing would be shared between the two. And manufacturing right now is the rate limiting factor. So even with the delay in the treatment pivotal, we don't anticipate the approval date will be affected. Because the part that we think is going to be the regular limiting factor is the speed at which USDA is able to test the manufacturing samples we send them. So USDA takes the bios from your manufacturing run, and they run their own tests on those samples. And from what we've heard, there's a delay, it's taking them longer than it normally does, because they're short staffed, most likely due to COVID.

[Operator:]

Our next question comes in a line of RK from H.C. Wainwright. Your question, please.

[Swayampakula Ramakanth:]

Thank you and good afternoon Richard and Wendy.

[Wendy Wee:]

Good afternoon.

[Swayampakula Ramakanth:]

Yes, just like - just as you explained a little bit about the revenue run from Vaxart. Like to understand the contact under the prevent program for the IDIQ. How long is this contact for? And any color as to how we would see that - revenue run rate from the NCI?

[Richard Chin:]

Sure, so this is part of large overarching program that NCI has, that we announced previously that we were one of the three qualified vendors for this program. So, the contract that we were awarded the task order has couple of different components. So, it could be under a $1 million to over $1 million for this first portion. So that's why we haven't put out the exact numbers because it's variable to have. They have an option for the second part of the contract. We believe that this is the first of multiple contracts that we are likely to be awarded under this overarching program. So right now, we can't predict because obviously, it depends on which additional contracts we get awarded.

[Swayampakula Ramakanth:]

Thank you. And then regarding Mirataz under Dechra, what do you think of - or what is your feeling regarding how it's being commercialized, and also, just so that we can understand the flow of revenue to the royalties from that product?

[Richard Chin:]

Sure, I'll start it off. And then I'll have Katja to add to what I'm saying, because she's in charge of managing the partnerships. I'll start by saying, we've been very, very happy with how Dechra is handling our product, it's a high priority for them. They really like the product. They're getting really good feedback, and they're able to leverage the rest of their portfolio to get adoption. So we're seeing a steady, upward trend in the move out. But Katja, do you want to speak to that a little bit?

[Katja Buhrer:]

Sure, so they realized strong growth in U.S. Mirataz sales - the launch of the product in April 2020, and have achieved a near 50% increase in monthly sales to U.S. clinics. So in the fourth quarter, the sales to distributors were lower on quarter-over-quarter, but sales from distributors to veterinary clinics increased versus the third quarter. They've also since launched in the EU and U.K. And so, we think we'll see an acceleration of the sales trajectory going forward. So we're very pleased with the results. We've seen that to date and we think that we have a strong track record currently and we'll see more positive news to come there.

[Swayampakula Ramakanth:]

Thank you. Thank you all for taking my questions.

[Richard Chin:]

Sure.

[Operator:]

Thank you. This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Dr. Richard Chin’s for any further remarks.

[Richard Chin:]

Thank you, operator. I'd like to thank our listeners for continued support, as we look forward to an exciting and catalyst rich year.

[Operator:]

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.