Zevra Therapeutics, Inc.
Q2 2022 Earnings Call Transcript

Published: 11 Aug 2022

[Operator:]

Good afternoon, and welcome to the KemPharm Second Quarter 2020 Corporate and Financial Results Conference Call. Currently, all callers have been placed in a listen-only mode and following managements prepared remarks, the call will be opened up for questions. [Operator Instructions] Please be advised that today's call is being recorded. I will now turn the call over to Nichol Ochsner, KemPharm’s Vice President, Investor Relations and Corporate Communications. Thank you. Ma'am, you may begin.

[Nichol Ochsner:]

Thank you. Good afternoon, and thank you for joining our call to discuss KemPharm's second quarter 2022 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 forward-looking statements except as required by law. For more 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. In addition, we are very pleased to have Perry Sternberg President and CEO of Corium Inc. on today's call to provide an update on the commercialization of AZSTARYS. Following the remarks Travis and LaDuane will participate in a question-and-answer session. With that it's my pleasure to introduce, Travis.

[Travis Mickle:]

Thank you, Nichol. And thank you everyone for joining us again today. We are pleased to have Perry with us on our second quarter results call today. We'll also be providing some product development updates from myself as well as the typical financial update from LaDuane, our CFO. So with that I'm actually going to turn it over to Perry and just do a short intro here. Perry is a biotechnology and pharmaceutical industry leader with more than 25 years of commercial experience across a wide range of therapeutic areas and diverse markets. Prior to Corium, Perry served a dual role at Shire as the Head of Commercial for seven therapeutic area business units as well as the Chief Commercial Officer/Head of Neuroscience Division before the acquisition of Shire by Takeda in early 2019. I had the pleasure to note Perry for a number of years. And of course we work closely together as partners on AZSTARYS. So with that Perry, I appreciate your participation and I'll let you take it from here.

[Perry Sternberg:]

Thank you, Travis for the introduction and for inviting me to provide an update regarding Corium's commercialization of AZSTARYS. And this is a very exciting and busy time for us at Corium so I would like to start with a brief overview of Corium. Next slide. I'm pleased to be able to say that over the last few years, Corium has transformed itself from being primarily a contract development and manufacturing organization into an end-to-end pharmaceutical company that develops manufactures and now commercialize innovative CNS products. Since late 2018, Corium has been owned by an affiliate of Gurnet Point Capital, a leading health care private equity organization. We have offices and a manufacturing facility in Grand Rapids Michigan and offices in Boston Mass. We have assembled a seasoned leadership team with broad ADHD experience including some who previously worked at Shire and help launch and build Vyvanse into a blockbuster. We have two recently approved CNS products we are commercializing

[Travis Mickle:]

Yes. Thanks, Perry very much for your time and I appreciate that very detailed and very timely presentation of the update on AZSTARYS and the commercial launch. So thank you very much, again for your time. You can drop off, whenever you choose to. So now turning over to the KemPharm updates that we have today. Just briefly, for those that may be new to the KemPharm story, KemPharm really has gone through what is a remarkable transformation from its initial days as a prodrug drug discovery organization, where we transformed into development and eventually had partners and one you just heard about right there with AZSTARYS. And now today, where we have a late-stage CNS-focused rare disease product. We have mid-stage another opportunity, as well of course revenue opportunity, with our partnerships that are already in place. This transformation is not done. We have great balance sheet. We have the potential here from any number of these products, to transform the organization again into what would be a commercial organization. So from early-stage drug discovery, all the way through potential commercial launch, commercial company that is a true value proposition and that's what KemPharm brings for us, today. Looking at some of our recent highlights. You can start to really see that transformation happening or unfolding before you. The most recent news I believe that everyone should be very aware of, if you're familiar with the story is the acquisition of arimoclomol. This was an NDA-stage asset that was available for us because of some difficulties that arimoclomol went through with the CRL involved with the treatment of Niemann-Pick type C or NPC for short. We're able to obtain this asset through a very capital-efficient structure effectively allowing for the potential future of positive cash flow as well as overall no shareholder dilution. Certainly a very clever financial transaction. And then not only in obtaining this asset we also have the potential to refile the NDA as soon as the first quarter of next year. So, here again we went from a product that was just approved in AZSTARYS to a mid-stage asset in what's known as KP1077 for idiopathic hypersomnia and now with a late-stage product with a resubmission of an NDA first quarter of next year. Just highlighting again for KP1077 our other development stage asset. That is for the treatment of idiopathic hypersomnia. Everything here in our development program is still remains on track. We have a Phase II trial that we'll officially initiate in the second half, which of course, we are already in. Work has already begun around this and I'll give a few more details. We also expect to see some results from a cardiovascular trial that we initiated last quarter and those topline results should be available sometime this quarter. We have the very relevant update from Perry on the AZSTARYS launch. Very exciting news with the growth in sales reps, the growth in coverage which just really leads to the future here for the potential for royalties and milestones. And then as I mentioned before the strong balance sheet of cash and cash equivalents of roughly $114.5 million as of the end of the quarter and the potential to add more revenue in the future through various sources. So, with those highlights, I'm going to touch on briefly some of our development-stage assets starting with arimoclomol as the most advanced candidate. This is a little bit of a review. Everything here is basically no fundamental change to what we've updated in the past with arimoclomol. This is a treatment ultra-rare disease for Niemann-Pick type C or NPC for short. It's a disabling and fatal lysosomal storage disorder. Primary symptoms or issues with Niemann-Pick type C are related to neurological symptoms and so that's why we believe those neurological symptoms are something we're very familiar with, with other CNS disorders and something that fits very well within our expertise and our ability to develop. Right now, there's no approved treatments that exist in the United States for NPC. I've mentioned the very efficient capital -- capital efficient financial structure for the acquisition. The upside opportunity that we see is severalfold. Number one this is a late-stage candidate allowing us to transform commercially. But it also provides an opportunity to highlight our expertise internally, which is in development of assets say that may not be particularly attractive to other organizations or things that have gone through their own development difficulties. We've had here in the case of KemPharm with APADAZ, the CRL that was issued. We went through an appeal process and ultimately, got that product approved and partnered. Considering it was an opioid that is a remarkable feat. AZSTARYS had some difficulties with statistical analysis. And we did work closely with our partner there at Corium to help them along with their ADLARITY program. So those two aspects really tell you about what we believe the future of KemPharm will be a strong development organization transforming and adding commercial as part of that value proposition. Arimoclomol also has a number of early access programs available to it in the U.S., France and Germany primarily in other European countries. In France, and this is very progressive and interesting system in which they allow for reimbursement prior to approval for certain rare diseases that have an unmet need. Currently under the French EAP system, we estimate, we generate roughly $12 million a year in annual gross revenue under that program. LaDuane will give a few more updates on what that looks like and how that may be used under the financial structure, we used to acquire the asset. Looking now a little forward with arimoclomol, again we have this near-term opportunity to commercialize the asset. And I haven't really given any forward-looking thoughts here. This is an ultra-rare disease. So we know literally there's, roughly 300 identified patients. Many of them are part of a patient registry. And all of them go to see specialists at various centers around the country. And so it is not terribly difficult to generate the appropriate commercial organization in order to reach all of these patients and of course all the thought leaders, clinicians and everyone involved in those processes. So that's why it's great to start with a disease like Niemann-Pick as your first opportunity to treat

[LaDuane Clifton:]

Thanks Travis, and good afternoon. We continue to have the benefit of a very strong financial position and Q2 has proven to be the same sort of good results we believe. For the quarter, we had net revenue of $1.3 million. That's derived from Arimoclomol product sales, consulting service fees and royalties. It's a change in revenue from what you've seen in prior quarters. And I would just note that as we've talked to you before, we knew that consulting service fees would be reducing as that contract came to an end. We do have a continued sort of smaller scope in that regard, but really not going to be a principal driver of revenue going forward. And then of course, included in the Q2 revenue is only one month of Arimoclomol product sales, so just the month of June since the transaction closed there, just on May 31. So, you can expect then, that you would see increasing impact from that revenue on the go-forward quarters where you'll have a full three months each quarter. When you look at the net loss for Q2, it came in at $24 million or $0.70 per share. But that did include a one-time non-cash expense, which is related to the Arimoclomol asset acquisition. Most of that purchase price ends up being written off on a non-cash basis and I think that's probably good for us in the future, but that's where the accounting guidance led us. If you account for that then you come up with a non-GAAP net loss of only $6.4 million or $0.19 per basic and diluted share, which I think is more relevant if you're looking at net income net loss trends. Balance sheet itself as of June 30, we remain very strong. And as Travis mentioned, we closed the quarter at $114.5 million in cash, very strong. It was a decrease of about $4.6 million compared to where we were at the end of Q1. And again this is sort of in line with our expectations. We knew that the R&D spending would be increasing as the 1077 program is underway and so all of the work that Travis mentioned is work that we've begun during Q2, and you see that increase there. But also in future quarters, I think you'll continue to see probably a cash burn rate in the range of $4 million to $6 million a quarter. And again, that's very much within our operating expectations. The actual line of credit, Travis had mentioned that we brought this on really as a novel, really creative way to maintain capital flexibility. Because there is an ongoing revenue stream from the arimoclomol acquisition, we then chose to use a line of credit which can be serviced by that cash flow and then we're able to use our cash reserves in other ways. It gives us flexibility for our operating plan and all the development milestones that we intend to reach, as well as sort of the potential -- if there are opportunities in business development ways, we still have the flexibility of a solid balance sheet for those purposes also. Our cash runway continues to be very strong and really goes beyond 2025 and again just really puts us -- sets us apart from other companies candidly in the space where we do not have an immediate need to raise capital. And to be more specific the capital we have on the balance sheet and this runway allows us to complete those things required to hopefully get arimoclomol approved. It also allows us to do all the development work and take 1077 up to an NDA submission as well. So, we are in a very good position and I think for all of those reasons we're very excited about the future for KemPharm. So Travis, I guess at this point we'll go ahead and turn it over and take questions. Operator you can open the Q&A please.

[Operator:]

[Operator Instructions] We'll take our first question from Jonathan Aschoff with ROTH Capital Partners.

[Jonathan Aschoff:]

Thank you., good afternoon, guys. Could you please tell me what you think might be the riskiest part or parts of the arimoclomol refiling?

[Travis Mickle:]

Jonathan, this is Travis. That's a very good question. We have been spending the vast majority of the time since the acquisition in digging into all of the details, given that the transaction itself happened in a very rapid timeframe. Fundamentally there were three major items that were brought up in the CRL related to the validity or the strength of the primary instrument to measure NPC, also known as the NPCCSS. Secondary to that is how basically the efficacy was determined through use of very statistical methods the [indiscernible] as they're known in order to determine if there was an effect and a lot of that involves missing data and so forth. And then last, but not least was confirmatory evidence. I think going through that I can't identify one that doesn't rely on the other. I do believe that there are strong data that's been produced by the former Orphazyme team and since the acquisition together now with those individuals as well as additional evidence through confirmatory evidence that we address all the issues. I guess fundamentally we can't go back and change the instrument. So if I had to say where the greatest risk remains is on convincing the agency that this is a validated and strong and robust method for determining the progression of the disease with NPC.

[Jonathan Aschoff:]

Okay. That's helpful. Could you please break down the $1.3 million among the three line items AZSTARYS, arimoclomol and other non-product category?

[LaDuane Clifton:]

We'll have to look and see how we break that down in the 10-Q, Jonathan, but I will tell you the -- if I -- the French EAP revenue came in at about $1.4 million and then we show it net of liability we have to owe we may potentially owe if approved. So in that reduction is a discount of about 35%. So with that knowledge then you can kind of fill in the rest. And hopefully, in the 10-Q we have a little more color there for you.

[Jonathan Aschoff:]

Okay. Any sense of when we might see some APADAZ revenue?

[LaDuane Clifton:]

Well, I'd just remind you that we had licensed that to KVK as you know. It is a profit share model and so we don't expect that we would receive anything until KVK has been able to get to a point of having profits. So of its nature, it is longer in time than a traditional royalty scheme. But with that said, I'll say, they continue to be pursuing commercialization of APADAZ. It's still in a very small sort of localized regional setting at the moment, but I don't believe it's near profitability. Therefore, I don't have a time line for when we would see profit share.

[Jonathan Aschoff:]

Okay. And lastly you said $4 million to $6 million quarterly burn cash beyond 2025. Should I read that as if you expect to be cash flow negative through 2025, or do you not really expect that with particularly help from arimoclomol and AZSTARYS?

[LaDuane Clifton:]

Sure. No, I love the question, because when I put together and take a look at the cash runway I try to do as a very conservative lens for that. So I believe the early access revenue is reasonable to use as part of your operating forecast. But given the sort of – it's hard to gauge the time lines of the AZSTARYS revenue. So, when I quote that then, I'm looking at sort of our cash runway plus our budgeted R&D, plus the contribution of the French revenue, and that's all I'm including. The upside to that forecast would be royalties, stronger royalties than expected, or royalties in general from AZSTARYS, as well as when they reach those net sales milestones those would also be upside to that forecast. So I'm trying to paint a very realistic picture, but we also find ourselves in this place, where we're kind of generating revenue, but we're also certainly a development company continuing. So there is a point and we hope it's when we get approval of arimoclomol that we will truly become a commercialized entity with meaningful revenue that we get to keep the majority of it, because we'll commercialize directly. So, but that explains how I derive that runway.

[Jonathan Aschoff:]

That helps me somewhat. Thank you very much.

[Operator:]

This concludes the Q&A portion of today's call. I would now like to turn the call back over to Travis Mickle for any additional or closing remarks.

[Travis Mickle:]

Thanks, again, everyone for joining today's call. I would just like to summarize a lot of what you heard here today. Certainly, we've talked about the transformation. You've heard us speak about this strategically for the company for about nine months now, moving the organization forward, and thinking about where we sit today, a strong financial position. We have a partnered asset. You just heard from our partner that is moving to a full national launch. So we have the great upside there of AZSTARYS royalties and milestones. We have a late-stage asset that already generates revenue and effectively pays for itself, at least, here in the short term and could be cash flow positive. And then on top of that we have a mid-stage rare disease product with KP1077. It's a remarkable story. I can't find another one out there something like this, at our market cap and our price and where we are. It's just simply amazing that, we sit where we are with all that opportunity. So certainly, we're very excited and hope you are as well. Again, I appreciate the time. Thanks everyone.

[Operator:]

Ladies and gentlemen, this concludes today's KemPharm Second Quarter 2022 Earnings Call and Webcast. You may disconnect your line at this time, and have a wonderful day.