Zevra Therapeutics, Inc.
Q4 2017 Earnings Call Transcript

Published: 29 Mar 2018

[Executives:]

Daniel Cohen - Executive Vice President, Government and Public Relations LaDuane Clifton - Chief Financial Officer, Secretary and Treasurer Travis Mickle - President, Chief Executive Officer and Chairman of the Board; Co-Founder

[Analysts:]

Daniel Busby - RBC Capital Markets, LLC Ken Cacciatore - Cowen & Company, LLC Scott Henry - ROTH Capital Partners, LLC

[Operator:]

Good day, ladies and gentlemen, and welcome to KemPharm’s Fourth Quarter and Year-End 2017 Corporate Update Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be provided at that time. [Operator Instructions] I’d now like to introduce your host for today’s conference, Executive Vice President, Dan Cohen. Please go ahead.

[Daniel Cohen:]

Thank you, and good afternoon, everyone. Thank you for joining our 2017 fourth quarter and year-end financial and corporate results call today. At this time, I would like to remind all 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 included, but not limited to, statements about KemPharm’s expectations regarding future operating results. Forward-looking statements on this call are made pursuant to the Safe Harbor provisions of the Federal Securities Laws. Information contained in the forward-looking statements is management’s beliefs based on current expectations and is subject to change and actual results may differ materially from forward-looking statements. KemPharm disclaims any obligation to update any such factors or to announce publicly the results of any revisions to any of the forward-looking statements those that reflect future events or developments, except as required by law. There is more complete information regarding forward-looking statements, risks and uncertainties in the reports KemPharm files with the SEC. These documents are available on KemPharm’s website at www.kempharm.com under the Investor Relations section, and we encourage you to review these documents carefully. Before I introduce today’s speakers, I would like to remind listeners that KemPharm is using a slide presentation with the conference call. This presentation is accessible via the Investor Relations section on KemPharm’s website and is included also within the webcast. Joining me on today’s call is LaDuane Clifton, our Chief Financial Officer, who will review KemPharm’s fourth quarter and full-year 2017 financial results; and Travis Mickle, President and Chief Executive Officer, who will provide an update on KemPharm’s corporate, clinical and product development achievements. At the conclusion of our remarks, we will then proceed to a question-and-answer session. 2017 through early 2018 has been an important period for KemPharm assuring any changes for our company, how we will grow and how we will develop in the future with several anticipated near-term milestones to report in the coming year. We’ll begin this call by reviewing our financial results and then move to our corporate achievements and upcoming milestones. I now turn the call and the presentation over to LaDuane.

[LaDuane Clifton:]

Thank you, Dan, and good afternoon, everyone. I will provide a brief overview of our results for fourth quarter and full-year 2017. Additional details are available in our press release, which was published prior to the call. For the fourth quarter of 2017, we reported a net loss of $10.6 million, or $0.72 per basic and diluted share, as compared to a net loss of $9.9 million, or $0.68 per basic and diluted share for the same period in 2016. The net loss was driven primarily by a loss from operations of $8.2 million, net interest expense and other items of $1.7 million and by a non-cash fair value adjustment expense of $700,000. Loss from operations was $10.8 million for the same period of the prior year. The decrease in loss from operations was primarily due to a decrease in R&D and general and administrative expenses of $2.4 million and $200,000, respectively, period-over-period. For the full-year 2017, we reported a net loss of $43.4 million, or $2.96 per basic and diluted share, as compared to a net loss of $16.5 million, or $1.13 per basic and diluted share for the same period in 2016. The net loss for the year ended 2017 was primarily due to a loss from operations of $33.4 million, net interest expense and other items of $6.9 million and by non-cash fair value adjustment expense of $3.1 million. The loss from operations for 2017 of $33.4 million is a decrease compared to $37.5 million for 2016, which was primarily due to severance expense recognized in 2016 of $3 million that did not recur in 2017 and a reduction of $1.2 million in general and administrative spending. These decreases were partially offset by an increase in R&D spending of $200,000 period-over-period. As of December 31, 2017, total cash, cash equivalents, restricted cash, marketable securities, trade day receivables and long-term investments was $48.6 million, which was a decrease of $7 million compared to September 30, 2017. Based on the recent approval of APADAZ, we have revised our forecast and now show that existing resources are now – are expected to take us into the beginning of Q1 2019. The change in the forecast is the result of entering into certain material supply arrangements required in preparation for the commercialization of APADAZ, as well as accelerating certain elements of the KP415 clinical program. During Q1 of 2018, we initiated sales of our common stock under our at-the-market offering, raising $2.9 million in gross proceeds through March 28, on the sale of 446,111 shares. Remaining availability under the ATM is $47.1 million. The ATM program allows for us to add needed liquidity, potentially benefiting both existing and new shareholders, as well as providing flexible access to additional capital as we prepare for our potential commercial partner or partners or APADAZ and continue advancing the development of KP415 towards an NDA in early 2019. We expect to continue utilizing the ATM program to provide a portion of the capital needed to fund our ongoing operations. Now, I will turn the call back over to Travis.

[Travis Mickle:]

Thank you, LaDuane, and thanks, everyone, for joining the call. There’s no question that the fourth quarter of 2017 and early 2018 has been a transformational period for KemPharm, highlighted by several milestones, which we believe demonstrate significant potential of our Ligand Activated Therapy and the talented team that implements it. To begin, as most on this call are aware, on February 23, the FDA approved the New Drug Application for APADAZ. Our prodrug of hydrocodone and acetaminophen for the short-term management of acute pain. Without question, this was the most important milestone for KemPharm to date, and one for which we’re all extremely proud. Not only does it enable the market entry of what we believe is a differentiated product for the short-term management of acute pain, but it also highlights the value proposition that LAT represents and validates our overall business strategy and corporate vision. Moreover, the APADAZ approval signifies the first of what we hope will be several NDA approvals of drug products developed with our LAT prodrug technology platform. KP415, our prodrug of d-methylphenidate for the treatment of ADHD is our next NDA candidate. And in December, we made a significant advance in the products development with the initiation of a pivotal classroom-style efficacy study. This progress combines with our recent announcement of positive results from our ongoing pediatric and adolescent PK study. That study suggest that a single efficacy ADHD trial designed with pediatric patients may also be applicable to adolescent and adult patient populations thus potentially allowing an initial indication for all patients with ADHD age of six and up. The initiation of a pivotal efficacy trial of KP415 and FDA approval of APADAZ were clearly the headline drivers for KemPharm over the past several months. But important progresses was made across our product pipeline. This includes acceptance by the FDA of our Investigational New Drug Application for KP484, our super-extended release d-methylphenidate prodrug for the treatment of ADHD. USAN approval for Asalhydromorphone as the nonproprietary name for KP511 are prodrug of hydromorphone. Additional U.S. patents in the family of patents governing KP511, as well as patents for KP606, a prodrug of Oxycodone, and lastly, entering into a Licensing and Assignment Agreement with Genco Sciences to develop a prodrug-based therapy for Potential Rare Pediatric Indications, including Tourette Syndrome with ADHD. Collectively, these achievements are a testament to the value potential of our LAT prodrug platforms and set the stage for we expect to be a milestone-rich 2018. The potential advantages of our LAT prodrug platform have been the foundation of KemPharm since it’s inception, and in many ways are the heart of our value proposition. However, until February 23, we could not provide you with a direct evidence that LAT developed prodrugs could successfully complete the vigorous regulatory drug approval process. With the FDA approval of APADAZ, we can firmly answer that remaining questions. The answer is demonstrably, yes. While APADAZ is KemPharm’s first prodrug product secure an FDA approval, we believe our ADHD portfolio represents our most significant growth driver and is our next in line opportunity. KP415, the most advanced of our two ADHD prodrugs is designed to address a number of unmet needs with currently marketed methylphenidate ADHD treatments, including onset of action, duration of action, as well as consistency of the therapeutic effect. In addition, the prodrug offers the possibility of a lower abuse potential. All of these alone are significant needs in the minds of physicians, get together they potentially represent what could be a best-in-class methylphenidate product or even more a best-in-class similar product. As mentioned earlier, we initiated a KP415 pivotal efficacy trial in December. The intent of the study is to produce data that demonstrate an early onset as early as 30 minutes with a potential duration of up to 13 hours. Most current ADHD products are only indicated to work up to 12 hours post-dose. Based on current estimates, we expect that all patients who have completed the efficacy trial by the end of the second quarter of 2018, with top line data expected by mid-year. In parallel to the efficacy studies, we’re also conducting a human abuse potential program for KP415 to assess the abuse potential of the prodrug relative to methylphenidate via the intravenous, intranasal and oral routes of abuse. In a survey of physicians who come and prescribe ADHD medication, it was found that abuse potential was one of their key unmet need for a methylphenidate product. Even more surprisingly, many could name Vyvanse as a less abusable option even though the product has less than ideal labeling and data regarding this feature and is not marketed as a less abusable option. Based on its primary market data, as well KOL input, we believe in addition to the better patient option and less abusable methylphenidate product, which currently doesn’t exist would be of high value to physician. Initial intravenous data from the KP415 human abuse program should be available in the second quarter of this year with intranasal and oral abuse data later in the year. In summary, we anticipate multiple significant data milestones for KP415 throughout 2018. This timeline coupled with the just announced pediatric PK study, which should provide us support for KP415’s potential effectiveness in an adolescent and adult populations still puts us on track to file a new drug application for KP415 as soon as the first quarter of 2019. The KP484 program is also moving ahead as planned with the filing and acceptance of the Investigational New Drug application this past November. Developed as a much longer acting prodrug version of methylphenidate, KP484 is designed for the treatment of ADHD in patients who respond best when full day duration of therapy is required. Our plan is to develop KP484 along with similar pathways KP415 with efficacy studies of KP484 initiating later this year. Of importance, the KP484 program is expected to leverage data from our current and ongoing KP415 research, including the PK and human abuse liability studies, which should allow us to progress along an expedited timeline and towards a potential NDA in late 2019, as well as provide significant cost advantages. Essentially, KemPharm can obtain access to two completely unique markets within ADHD with a cost of roughly 1.5 development programs. In addition to KP415 and KP484, we announced several advances with our prodrug pipeline during the fourth quarter of 2017 and earlier parts of this year. Most recently in January, we were granted composition of matter-based patents from the USPTO for KP606, a Prodrug of Oxycodone, and we also added to the family of patents for the KP511 class, a Prodrug of Hydromorphone. These patents add to the LAT covering both assets, as well as KemPharm’s overall patent state. As noted previously, products developed with our LAT prodrug platform are considered new molecules, which are eligible for long-lived composition of matter-based patent protection and we believe this is a significant value-add for KemPharm and the companies that work with us. Regarding our KP511 program, in November, we announced that the USAN Council approved the use of the nonproprietary name, Asalhydromorphone, for the use of the descriptor for the active pharmaceutical ingredient. The assignment of the Asalhydromorphone designation marks the second opiate products developed with our LAT prodrug platform to be granted and officially recognized new chemical structure. The first occurred in 2013 with the assignment of the non-proprietary name, benzhydrocodone or KP201, the prodrug in APADAZ and KP201/IR. In October, we entered into a technology licensing agreement with Genco Sciences with a goal of creating a new prodrug product for the treatment of rare pediatric Tourette Syndrome when accompanied by ADHD. Finally, I’d like to comment on the update and change to our current operating forecast that LaDuane provided. The increased investment in APADAZ manufacturing in order to secure a potential PBM generic pharma for both types of partnerships, as well as advancement of KP415 clinical development, we currently see existing resources will fund our operating expense capital expenditures well into quarter Q1 of 2019. We believe that both actions support the commercial growth and development of our company and will provide significant non-dilutive funding opportunities in the coming months. In addition, we see a number of significant milestones for the organization, which could provide additional – additional financing options. Current and future use of the ATM offering has provided us with the ability to prepare for both of these, while in a much stronger position for partnership. With APADAZ commercial – commercially ready and our co-lead clinical development candidates KP415 and KP484 progressing as planned. We believe we are in a key inflection point in company’s growth. End of your calls typically spend more time recounting past accomplishments and while I’ve done quite a bit of that today, our real message of this call is the forward-looking view we have for KemPharm in the coming days. We anticipate the next 12 to 18 months to be a milestone rich period for KemPharm with multiple value enhancing catalytic events forecast to be announced during the balance of this year and into 2019. Specifically, let me summarize the major anticipated announcements of the expected milestones during 2018 and to early 2019 for our product pipeline. First would be the intravenous HAL data from KP415, which we believe will be in the second quarter of 2018. Top line data from our KP415 efficacy data around mid-year, intranasal and oral abuse human liability studies data from that should be available in the second-half. We also plan to initiate KP484 efficacy studies later this year as well and in the NDA application for KP415 in early 2019. We also expect an announcement of a partnership or partnerships for APADAZ before year-end. These events combined with the ability to harness our LAT program to develop additional products offer KemPharm an abundance of growth opportunities, both near-term and longer range. We are intently focused on pursuing multiple internal and external opportunities to maximize our prodrug expertise and the potential that prodrugs can offer throughout the healthcare continuum. With that, I’ll now open the call to your questions.

[Operator:]

Thank you. [Operator Instructions] Our first question comes from Randall Stanicky with RBC Capital Markets. Your line is now open.

[Daniel Busby:]

Hey, this is Dan Busby on for Randall. A couple of questions on KP415. To start, as we think about the potential launches early at the end of next year, can you provide us with an update on the competitive landscape from your standpoint? For example, where do you see the most competition coming from, whether it would be existing on market products or other potential new launches?

[Travis Mickle:]

As far as KP415 goes, the competition right now as we see it will be directly with Vyvanse. Though it is kind of the left hand, the Vyvanse is right hand, where Vyvanse is being a prodrug of amphetamine, KP415 could be again, a complementary prodrug of methylphenidate. Many times these products have unique patients within the ADHD space. As far as what else is out there, I mean, there are a number of methylphenidate products, but most of them suffer from the same issues or unmet needs that I listed out in the call. The shorter – longer kind of onset of action, short duration of action and then, of course, abuse potential, all of them are just as labeled as just as abusable as other methylphenidate products. So I think, those areas really distinguishes us potentially from what’s already available. And we don’t really see any other products being developed that could potentially supplant this.

[Daniel Busby:]

Okay, got it. That’s helpful. And then just a follow-up on that. Clearly, longer duration, earlier onset, the lower abuse potential are all clearly important. But based on your discussions with physicians and early market research, do you have a sense of what’s really going to drive their prescribing decisions? So in other words, what will they need to see on the label or from the clinical data in order to actually kind of change their current behavior. And then in addition to that, it maybe early, but is there any feedback you can share on what payers would be looking for as well?

[Travis Mickle:]

Well, I answer the payer question first is, they say no to everything. So especially in ADHD, everything usually gets a step at it or prior authorization just because it’s a life time diagnosis. So, we’ll do our peer research later on. We also expect, as we’ve done with APADAZ, that we will see commercial partnerships after we get the efficacy data from this product. But ultimately, the physicians, in this particular case, still be able to see from results of this efficacy study that onset of action could be as early as a half hour could go as long as 13 hours, they’ll be able to see that demonstrably in the label and in the materials available once the product is approved abuse potentials and other area. But I think, one thing that that’s really not touched on is through a lot of that physician work in KOL work is that, prodrugs themselves because of the success of Vyvanse, because it’s done so well, they kind of have a halo around it. So this will be the first prodrug of methylphenidate ever described and ever approved. So this could be a great opportunity to really step on the tails of Vyvanse and be able to advance that product ahead with that sort of halo around it.

[Daniel Busby:]

Okay. Got it. Thank you. That’s super helpful.

[Operator:]

Thank you. Our next question comes from Ken Cacciatore with Cowen. Your line is now open.

[Ken Cacciatore:]

Hey, guys, let me ask 415 a little bit differently. Do you have – what percentage of concerted patients are also committing on an IR dose, i.e., they have the top off their dose at the end of the day with immediate release that maybe 415 would be able to carry through and not have two prescriptions? And then on APADAZ, heard your prepared remarks. But I was just wondering if you could give any more nuance or context about how you’re thinking about upfront maybe license fee or upfront payments versus participating in the backend? So as you talk about kind of non-dilutive financing, you definitely have a lot of leverage to pull here. Just how you’re thinking about balancing those two potential financials? Thanks.

[Travis Mickle:]

Sure. I’ll start with methylphenidate question. I mean, we don’t have direct numbers. I know there’s a lot of adult patients who suffer from end of the day issues regarding duration of the current extended release methylphenidate, whether they be concert to full clinics or others. And so that’s – that was some of the basis for Shire developing the product MYDAYIS, which is a much longer acting amphetamine-based product. But knowing, again, there are patients that cannot switch between the two therapies, we see that as an underserved area that KP484 could address eventually about 415 could address now. I think, not only our IR dose is used, but also non-stimulants and other things for later in the day. And so anyway we can extend this Vyvanse did for amphetamine really should provide a huge benefit to patients. And then to the second question as far as APADAZ, I mean, we can’t comment directly on any sort of structures or ongoing discussions. We’ve discussed in the past, we’re looking for really down two avenues and both of them could be ultimately what we end up using together. One, where we partner directly with the PBM to replace their current generic prescribing prescriptions for Hydrocodone and APAP products, which are roughly about a 5 billion tablet market. In return, we were provided at or near a generic acquisition cost, and then a generic partnership that could supply that entire market somebody that has the infrastructure and the capacity and the efficiencies that ultimately could drive a much higher margin for both KemPharm and that partner. And we’re in advanced discussions with on both fronts. So we’re excited about the opportunity, but of course, until it’s final, we don’t have anything we can say really.

[Operator:]

Thank you. Our next question comes from Scott Henry with ROTH Capital. Your line is now open.

[Scott Henry:]

Thank you, and good afternoon. I will just start on the income statement. How should we think about spending in 2018, at least, as far as directionally relative to 2017, particularly for R&D? I would assume, G&A will pickup a little bit and also should we factor in anything for APADAZ in 2018 expenses?

[LaDuane Clifton:]

Sure, Scott, good afternoon. This is LaDuane. Yes, I think that the cash burn during 2018 forward as we updated our forecast, it’s going to range somewhere between $9 million to $12 million, really depending on the completions of studies in different events through the quarters. That’s a little bit of higher rate in prior year, I would – and that’s all encompassing. So I think, you’re right. G&A will be sort of flat. Most of that spending is – increase would be in the R&D space.

[Scott Henry:]

Okay. Thank you. That is helpful. And then just to talk a little bit about 415 and efficacy study. Can you talk about enrollment in that trial and how easy or hard it is typically?

[Travis Mickle:]

Enrollment in most ADHD trials is actually fairly rapid. I believe where we’ve actually completed enrollment for all the patients that would be in the study. And so there are various stages of the testing periods and follow-ups. But we haven’t had any issues whatsoever with 100 – roughly 140 total with the end of 124 as our goal. So we haven’t had any issues in that respect.

[Scott Henry:]

Okay, great. And then if you could remind me on the trials primary endpoint, could you just kind of walk through what that will be? And then I assume it will be by hours 9 hours, 10 hours or up to 13 hours. And 13 hours would obviously be the either hook to the data. Can you just talk about that?

[Travis Mickle:]

Sure. The primary end part – point is what’s known as the scamp at their rater scale. So we have individuals that sit in these classrooms and actually have in front of them a number of questions that they have to answer about the child’s behavior, whether they stay in their seat, tapping their pen, bouncing their knee, bothering their neighbors whatever. Based on that scale, that is the primary endpoint and that’s the points that we will look at during the time course. So starting in a half hour all the way up to 13 hours. During that same time, they take a math test. The math test is in order to give everybody something to focus on during those time point. So that’s known as the part – that’s the secondary endpoint, which is also important here. I mean, just one thing to note is that methylphenidate is a powerful nerve stimulant the likelihood that we would miss our primary endpoint here would be relatively small. And then on top of that where we will see that onset and duration and those are really the key.

[Scott Henry:]

Okay, great. Thank you for the color. And then I guess, the final question. When we think about the pain pipeline beyond APADAZ, I noticed you talked – you spoke of filing in 2019. Is your commitment full to that pipeline now that you’ve received approval in a satisfactory label? Should we think about that as a former commitment now? It seems like it was more exploratory in the past?

[Travis Mickle:]

Yes. No I think, we’re really giving the rest of the pipeline some real thought – the – especially given what we’re thinking to do with APADAZ. If this is successful, if we’re able to find a path forward commercially for APADAZ, we will look at our pipeline and say, we’ll perhaps we’ll prioritize this and look elsewhere. But we’re also thinking about partnering the entire pipeline. It will makes sense for somebody that would want to have multiple shots here to do the same thing or perhaps even brand one of these products that the opportunity is there to still capitalize on what is robust IP and great clinical differentiation.

[Scott Henry:]

Okay, great. Thank you for taking the questions.

[Travis Mickle:]

Okay. Thank you.

[Operator:]

Thank you. That now concludes our question-and-answer session. So I would like to turn the conference back over to Dr. Mickle for closing remarks.

[Travis Mickle:]

I appreciate, everybody, joining the call today. I appreciate the great questions and look forward to a great 2018 and rest of the year. I’m sure, we’ll have more updates near-term. Thank you.

[Operator:]

Thank you. Ladies and gentlemen, that does conclude today’s conference. Thank you very much for your participation. You may all disconnect. Have a wonderful day.