Zevra Therapeutics, Inc.
Q1 2017 Earnings Call Transcript

Published: 10 May 2017

[Executives:]

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

[Analysts:]

Randall Stanicky - RBC Capital Markets

[Operator:]

Good day ladies and gentlemen and thank you for standing by. Welcome to the KemPharm first quarter 2017 corporate update conference call. At this time, all participants are in a listen-only mode. Following management's prepared remarks, we will host a question-and-answer session and our instructions will follow at that time. [Operator Instructions]. As a reminder, this conference may be recorded for replay purposes. It's now my pleasure to hand the conference over to Mr. Dan Cohen, the Executive Vice President, Government and Public Relations. Sir, you may begin.

[Dan Cohen:]

Thank you and good afternoon everyone and thank you for joining our call today. At this time, I would like to remind everyone that during this call may contain forward-looking statements that involve risks and uncertainties that are subject to changes at any time including, 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 these forward-looking statements is management's beliefs based on current expectations and is subject to change. Actual results may differ materially from forward-looking statements. KemPharm disclaims any obligation to update such factors or to announce publicly the results of any revisions to any of the forward-looking statements to reflect future events or developments, except as required by law. There is a 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. We encourage you to review these documents carefully. Before I introduce today's speakers, I would like to note that KemPharm is using a slide presentation with this conference call. The presentation is also accessible via the Investor Relations section on KemPharm's website and is also included in the webcast. Joining me on the call today will be Travis Mickle, President and Chief Executive Officer, who will provide an update on KemPharm's corporate and clinical development achievements. I will provide a brief update on the Apadaz FDRR process. And LaDuane Clifton, Chief Financial Officer, who will review KemPharm's fourth quarter and year-end 2016 financial results. At the conclusion of the remarks, we will then proceed to a question-and-answer session. I will now turn the call and the presentation over to Travis.

[Travis Mickle:]

Thank you Dan and welcome everyone to KemPharm's first quarter 2017 financial and business update conference call. As Dan mentioned, we have provided a brief slide presentation to accompany today's remarks. This first quarter of 2017 was a very productive period for KemPharm as we initiated key processes that will enable us to execute on our clinical strategies for both KP415 and KP201/IR. For KP415 in particular, the next several months will be extremely busy with multiple pharmacokinetic studies set to initiate and report data followed by the initiation of the pivotal efficacy study in the second half of 2017. As stated previously, we believe KP415 is our highest value prodrug product and one that could potentially capture a significant share of the $13 billion plus ADHD market, should it be ultimately approved. Our strategy since aligning the company around KP415 and KP201/IR has been to advance both products through the clinic as efficiently as possible with the goal of NDAs in 2018. To accomplish this, we have carefully allocated our financial and human resources to the development of our pipeline with the expectation that 2017 will be year of significant clinical and research activity. I can report that the plan is coming to fruition and that hopefully the effort will produce the data we expect from both products. In this regard, our first quarter was a year-over-year shift from SG&A to an increased spend on R&D to accommodate acceleration of activities surrounding KP415. LaDuane will detail this later the call, but our expectation is that expenses will continue to reflect our focus on R&D in the coming quarters as the multiple studies which we have been planning begin to initiate and report out. While much of the quarter was focused on internal R&D work, in January we announced results from the Phase 1 intranasal study of KP511, our investigational prodrug of hydromorphone for the treatment of pain. As reported, data demonstrated statistically significant pharmacokinetic and pharmacodynamic differences of abuse potential. In addition, we strengthen our IP estate for KP201/IR and KP511 during the quarter and presented clinical data for both products at AAPM. As discussed on our previous quarterly conference call, KemPharm is first and foremost a prodrug discovery company. We have focused on building of prodrugs that are an improvement on currently approved drugs and address unmet medical needs in large, established markets. As a team, since our founding and prior to that while we were at New River Pharmaceuticals, the company that essentially developed Vyvanse, we have built an expertise in prodrug science and development. Our library of knowledge and scientific experience with prodrug is unmatched and we believe this capability offers a significant value driver for KemPharm as well as a number of other pharmaceutical companies seeking to leverage the potential benefits of a prodrug to capitalize on unmet patient treatment needs and/or lifecycle management opportunities. In this regard, during the first quarter KemPharm began a strategic initiative to expand our pharmaceutical industry footprint and monetize our ligand activated therapy or LAT prodrug platform by identifying new prodrugs for internal development and possibly discovering new prodrugs in partnership with other pharmaceutical companies. The therapeutic rationale of a prodrug is to improve some deficient properties of an active pharmaceutical ingredient. Key properties that prodrug seek to modify include absorption, distribution, metabolism, excretion and toxicity with the end goal being that the creation of a new molecule optimizes the performance of the parent drug. Prodrugs also offer attractive risk/reward profile in that not only can prodrugs improve the performance of the parent drug, but the development time horizon is vastly shorter than a traditional new chemical entity because the active ingredient is usually known to be safe and effective. Therefore expensive safety and massive efficacy trials are typically not necessary. KP415 is a prime example such efficiencies. We accelerated the development of KP415 last September and in roughly eight months we are in position to conduct multiple PK studies followed by a pivotal human clinical trial at the end of the year. Should all go according to plan, KP415 has the opportunity to progress from IND to NDA in two years at a relatively modest capital spend. Such a development timeline is not possible to new chemical entity. Moreover prodrugs are typically eligible for patent protection as novel compositions of matter which can provide robust product life after a shortened development timeline. We see a significant opportunity to identify new prodrugs for internal development for ultimate outlicensing and possibly discovering new prodrugs in partnership with other pharmaceutical companies. Over the coming quarters, we expect to provide updates on this strategy with the intent to leveraging our discovery expertise to create opportunities to monetize our prodrug expertise. We are able to pursue such a strategy and offer such projections because our confidence in our LAT discovery platform, which is built on 20 plus years foundation of research and scientific discovery that has proven effective in numerous clinical and preclinical trials. KemPharm's ability to discover the unique parent drug ligand chemical combination via our LAT platform distinguishes our prodrugs from other drug products on the market, enabling us to create new molecules that are potentially safer, more effective and therefore differentiated products. As highlighted previously, KP415, our extended release methylphenidate prodrug for the treatment of ADHD is one of our highest priority pipeline candidates and we believe our highest value product. The prodrug is designed to address the unmet needs with currently marketed methylphenidate ADHD treatments. KP415 will be front and center for KemPharm during the next several months and throughout the year. in the near term, we plan to initiate multiple PK studies in the second quarter with data during the second half of the year. Studies will include metabolic parents, dose proportionality, food effect, steady state and pediatric PK, among others. We also have an end of Phase 1 meeting scheduled with the FDA in the second quarter. We expect these studies and the Phase 1 meeting with the FDA to provide additional development guidance prior to the initiation of the pivotal efficacy trial in the second half of 2017. Final data from this study is expected by the first quarter of 2018 with a potential NDA for KP415 in 2018 as well. Clearly the next three quarters are a pivotal period for KP415 and KemPharm. Should the data be favorable, we believe the design of KP415 can provide significant points of differentiation in comparison to currently approved products thereby enabling KemPharm to potentially capitalize on key patient prescriber needs in the $13 billion plus ADHD market. KP201/IR is our acetaminophen free immediate release hydrocodone prodrug, designed for the treatment of acute pain. Like KP415, the clinical development of KP201/IR remains on track and we are currently in position to initiate the human abuse liability trial of KP201/IR in 2017, with data from the intranasal study by year-end. We continue to target an NDA for KP201/IR in 2018. For those of you new to KemPharm, KP201/IR is being designed as an abuse deterrent opioid that may offer comparable efficacy to Vicodin, Norco and Lortab, but with the potential safety advantage of having no added acetaminophen. It is an important distinction, as according to the FDA overdoses of acetaminophen are the most common cause of drug related liver injury. In 2011, the FDA limited the amount of acetaminophen in prescription combination products and required warnings to be added to the labels of all acetaminophen prescription products. Despite this, there currently no approved immediate release hydrocodone related products without acetaminophen in the United States, potentially enabling KP201/IR to be the first to market, while also delivering clinically demonstrated abuse deterrent capabilities. As a reminder, our continuing investment in abuse deterrent opioids is a strategic and interim decision, a decision process based on the Apadaz FDRR process, market and regulatory clarity as well as the changing political environment. As many of you are aware, Apadaz is currently in the FDA FDRR process. I will now be turning the call to Dan Cohen, EVP, Government and Public Relations, to address the of Apadaz FDRR.

[Dan Cohen:]

Thank you Travis. This is a very brief discussion of the Apadaz FDRR. It's a reminder that we announced on November 3 that we responded to the FDA's complete response letter for Apadaz with the initiation of a formal dispute resolution request or FDRR process. I am not announcing any material updates today. However, as we continue to receive questions about the FDRR process, today is a good opportunity to remind listeners, the appeal was submitted in accordance with the policies that exists within the FDA's Center for Drug Evaluation and Research. FDA regulations provide a mechanism for those seeking regulatory approval of a drug product pursuant to an NDA to obtain formal review of any agency decision by raising the matter with subsequent levels of the agency. This process has been working as anticipated. There has been a substantial dialogue on the questions of science and policy that we have raised with the FDA. We still anticipate that the FDRR process will reach completion prior to the end of the year as we forecasted in our announcement last November. During this time, the FDA typically requests that companies not comment on the substance of the discussions in the ongoing review. Our intent is not to discuss any results until we have reached the final determination of the FDRR. That said, I will return the call now to Travis to briefly discuss the reason for extended regulatory discussion with the FDA.

[Travis Mickle:]

Thank you Dan. With the Apadaz FDRR currently under review by the FDA, we thought it is important to help you understand the core question of science and policy that underpins why we entered into the FDRR and why Apadaz remains a focal point of our product development activity. To provide a quick overview of the potential benefit of Apadaz, we have provided to graphs on the slide you are viewing. The graph on the left is that of oral versus intranasal Norco. The scale that is used here is drug liking. We know from epidemiological data that Norco and products like it are used intranasally. This Norco data demonstrated no differences in drug liking Emax, take drug again and high, but yet abusers are still snorting this product. The key question here is why. We believe that the difference in early drug liking commonly referred to as rate of rise is the reward that abusers are seeking and that Norco provides. This is demonstrated by the Delta shown in the graph in yellow, referred to in the FDA guidance for ADF as time under the curve. Again, while mentioned in the FDA guidance for abuse deterrent opioids, these measures are not currently accepted as abuse deterrent properties. We believe they should be. If you look now to the graph on the right, you can see the same drug liking curve for both oral versus intranasal Apadaz. Similar to Norco, Apadaz did not show differences in drug liking Emax, take drug again and high. But it also did not provide an early drug liking difference versus oral Apadaz. There is no time under the curve as in the Norco graph on the left. So ultimately, the only award an abuser would receive with IN Norco abuse, it's not present with Apadaz. It is these differences as well as these similarities that lead us to believe there is a substantial deterrent effect benefit to Apadaz and this is the underlying reason we have entered into the extended regulatory discussion with the agency. Our third active clinical development program is KP511, our investigational prodrug of hydromorphone for the treatment of pain. As announced in January, we reported positive results from our Phase 1 intranasal study of KP511 which demonstrated statistically significant pharmacokinetic and pharmacodynamic differences of abuse potential. Data from the study indicated statistically significant reductions in peak and overall hydromorphone exposure with KP511 API versus hydromorphone API. The improved pharmacokinetics of KP511 resulted in meaningfully statistically lower scores in the exploratory pharmacodynamic measures of drug liking, feeling high, overall drug liking and take drug again when compared directly with hydromorphone API. Furthermore, in a retrospective assessment of drug preference after the last treatment, a significant majority of subjects, 17 out of the 26, preferred hydromorphone API over KP511 API, suggesting that KP511 may be less attractive for intranasal abuse. Several endpoints related to intranasal irritation including nasal burning, need to blow nose, nasal discharge and facial pain were also higher or more severe for KP511 versus hydromorphone. All of these PK measures appear to align with the FDA's current requirements to ADF labeling. As discussed previously, we anticipate filing NDAs for extended-release and immediate release versions of KP511 in 2019. With that, I would like to now hand the call over to our Chief Financial Officer, LaDuane Clifton, who will review our financial results.

[LaDuane Clifton:]

Thank you Travis and good afternoon everyone. I will provide a brief overview of our results for first quarter 2017. Additional details are available on our press release which was published earlier today. For the first quarter of 2017, we reported a net loss of $12.2 million or $0.84 per basic and diluted share as compared to a net loss of $2.9 million or $0.20 per basic and diluted share for the first quarter of 2016. The net loss for Q1 2017 was driven by an operating loss of $7.4 million, recognition of expense from a non-cash fair value adjustment of $3.1 million and net interest expense of $1.7 million. Specifically, loss from operations for Q1 of 2017 increased to $7.4 million compared to $7 million for the same period in 2016. The increase in loss from operations was primarily due to an increase in research and development costs of $0.9 million due to increased activity on our development programs for KP415, KP201/IR and KP511. The increase in R&D cost was partially offset by a decrease in general and administrative expenses of $0.5 million. As of March 31, 2017, total cash, which is comprised of cash, cash equivalents, restricted cash, marketable securities, trade day receivables and long-term investments totaled to $72.4 million, which was a decrease during the quarter of $9.7 million compared to the balance at December 31, 2016. Overall, following the recent strategic realignment of our investment priorities that we have discussed previously, our updated forecast indicates an expected cash burn rate of $7 million to $9 million per quarter. This leaves KemPharm in a solid capital position with existing resources expected to fund our development and operating activities through the second quarter of 2019. Now I will return the call back to Travis.

[Travis Mickle:]

The first quarter of 2017 was very important for KemPharm as we finalized much of our clinical planning for pipeline products, including the multiple PK studies for KP415, which we expect to initiate over the next several months. Data from these studies are anticipated during the second half of 2017. KemPharm remains in position to file NDAs for KP415 and KP201/IR in 2018 and NDAs for KP511/ER and KP511/IR in 2019. Considering that we announced our updated clinical development strategy just eight months ago, it speaks volumes about the efficiencies of our prodrug platform and our ability to rapidly advance programs from IND to NDA. As well, we are very excited by the prospects of extending our LAT prodrug discovery platform to new drug targets with the potential that a prodrug to improve the properties of an API could allow KemPharm or a company with which we are partnered to develop prodrugs that could capture or extend market share in a wide array of therapeutic categories. KemPharm's ability to offer an accelerated or derisked development timeline as well as composition of matter protection on any new molecule we develop is, we believe, highly attractive to pharmaceutical companies that are seeking to extend the lifecycle of internal products or seize market share from a competitor by introducing a prodrug with an approved treatment profile. With that I will now open the call to your questions.

[Operator:]

[Operator Instructions]. Our first question will come from Randall Stanicky with RBC Capital Markets. Please proceed.

[Randall Stanicky:]

Great. Thanks. Travis, I am not going to ask you the specifics about the FDRR process for Apadaz. But can you just do two things to help us there. One, remind us of past precedents around timelines? And then secondly, if it does go your way, how should we think about the commercialization of Apadaz? Is this a product that you would look to take to market yourself? Or would this be one that you think is more appropriate to partner? Thanks.

[Travis Mickle:]

Yes. So to the first part of your question, as far as the timelines that we provided recently, this is a generally about a three-step process. Each one of those steps is at our discretion and takes anywhere from three to four months. So the total package could take up to a year. Now during that time, there can be a resubmission of the NDA. There can be negotiations with the division. So there's many different regulatory avenues that can also happen during that. So as soon as we get a resolution, we would be happy to provide further guidance there. But the second part of your question about commercialization, we stated a number of different times, we are very good at prodrug discovery and development. We believe there is a lot of organizations that are very good at commercializing products. We are going to stick with what we are really good at and look for a partner for Apadaz, should that product get approved.

[Randall Stanicky:]

Okay. That's helpful. Let me ask one more. In your press release, I was curious about the language around there being a number of drug products where a potential prodrug could be effective. Can you talk about the process of identifying those opportunities internally? And then are there additional pipeline products that you guys have identified that you are now actively moving forward?

[Travis Mickle:]

Yes. So the general process is fairly straightforward. Again, we typically like to look at products with a significant market share. So something of value. After that, we look for the chemistry to make sure it works and we do a landscape assessment. So we are looking IP. Is there been any previous discoveries made in prodrugs in that space. The nice thing is, none of that is characterized by any therapeutic category. So we can work in any space we desire. Ultimately, then we can pick well, here is a program that we like and is attractive to KemPharm because of our internal expertise or it's a strategic fit for somebody else and we will either develop it or discover it and develop it at risk, realizing that they would have a value in that product or advance that to the point where you would have discussions with that organization. So yes, we have initiated several different discovery programs in different areas. We have not announced what those are yet but that work is well underway.

[Randall Stanicky:]

Okay. That's great. Thanks very much.

[Travis Mickle:]

Thank you.

[Operator:]

Thank you. [Operator Instructions]. And I am showing no further questions. So at this time, I would like to hand the conference back over to Mr. Dan Cohen for closing comments and remarks. Sir?

[Dan Cohen:]

Thank you very much for attending our call today. We look forward to speaking with you at our next opportunity.

[Operator:]

Ladies and gentlemen, thank you for your participation on today's conference. This does conclude the program and you may all disconnect. Everybody have a wonderful day.