Zevra Therapeutics, Inc.
Q3 2016 Earnings Call Transcript

Published: 9 Nov 2016

[Executive:]

Jason Rando - Tiberend Strategic Advisors Travis Mickle - President and CEO Dan Cohen - EVP, Government and Public Relations LaDuane Clifton - CFO

[Analyst:]

Marcus Ho - Oppenheimer

[Operator:]

Good afternoon, ladies and gentlemen, and welcome to the KemPharm Third Quarter 2016 Corporate Update Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions]. As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Jason Rando of Tiberend Strategic Advisors. Please go ahead.

[Jason Rando:]

Good afternoon everyone, and thank you for joining our call today. At this time, 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 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 to reflect future developments or events, except as required by law. There is more complete information regarding the 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 note that KemPharm is using a slide presentation at the conference call. The presentation is accessible via the Investor Relations section on KemPharm’s website and is also included within the webcast. Speaking on today's call will be Travis Mickle, President and CEO, who will provide an update on KemPharm's corporate and clinical development achievements. Dan Cohen, EVP, Government and Public Relations will provide an update on the Apadaz regulatory process; and LaDuane Clifton, CFO will review KemPharm’s third quarter 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 presentation over to Travis.

[Travis Mickle:]

Thank you, Jason, and welcome everyone to KemPharm’s third quarter financial and business update conference call. As Jason mentioned, we are providing a brief slide presentation to accompany todays’ remarks. KemPharm’s overall key mission is the discovery and development of proprietary products that improve one or more of the attributes of approved drugs, such as susceptibility to abuse, bio availability and safety. We do this by leveraging our Ligand Activated Therapy or LAT discovery platform to create prodrugs by chemically attaching one or more molecules or Ligands to an FDA approved parent drug. We then combined with the parent drug, our ligands create prodrugs designed to have improved drug attributes while maintaining efficacy equivalent to the parent drug. Once administered, targeted human metabolic processes such as those in the GI tract separate the ligand from the prodrug and release the parent drug, which then can exhort its therapeutic effect. Utilizing our LAT discovery platform, we are developing a portfolio of product candidates targeting opportunities and pain management, ADHD, and central nervous system disorders. The third quarter began a transformative period for KemPharm. Most importantly was the realigning of our development pipeline. As detailed in our corporate and clinical update on September 15, KP415 and KP201/IR were elevated to our co-lead product candidates. We achieved several key milestones with each product that’s moved us forward with opportunities that each offers to potentially address important patient, prescriber and market needs. Beyond our lead candidates, we are continuing efforts to advance KP511 extended-release, and we announced in the licensing agreement with Acura Pharmaceuticals of their proprietary aversion technology that we believe will potentially enhance the value of our entire immediate release of opioid portfolio. Additionally, as Dan will discuss in a few minutes, we have filed an appeal of the Apadaz TRL to the FDA through the initiation of the Formal Dispute Resolution Request process. And finally, as LaDuane will outline, KemPharm’s finances remain strong with 92 million on our balance sheet as of September 30, 2016 having reported a net loss of $0.92 per share for the quarter. KP415 is our extendor release D- Methylphenidate pro-drug for the treatment of ADHD. We are designing KP415 to meet two key deficiencies with currently marketed Methylphenidate ADHD treatments. These include the lack of duration of action as well as the consistency of delivery. With duration of action, we are mostly concerned with both the onset and total duration. So this is when a drug comes on and when it comes off. In speaking with thought leading clinicians, it became clear to us that advancements in these two areas would be viewed as significant improvements in the methylphenidate therapy for ADHD. We believe improved duration and consistency can provide significant points of differentiation and comparison to currently approved products, thereby enabling KemPharm with KP415 to potentially capitalize on key patient prescriber needs in the $15 billion plus ADHD market. Pharmacokinetic data from preclinical studies of KP415 suggest that the time to maximum plasma concentration of methylphenidate after oral administration of KP415 is approximately three times longer compared to currently marketed IR methylphenidate. Based on this pre-clinical data, we believe that KP415 will have the potential to offer the longest duration of action methylphenidate in the ADHD space. Additionally, KP415 as a prodrug that requires active metabolism may be able to deliver D-methylphenidate more consistently than the current formulation based approaches. More consistent delivery via active metabolism is an important feature of Vyvanse that is not yet available in the methylphenidate therapeutic category. In 2015, methylphenidate accounted for approximately 19.7 million prescriptions and 4.2 billion in sales. However patent exploration in the ADHD space is eroding the revenues of branded products such as Focalin and Concerta. Even Vyvanse which a product of amphetamine and today is the branded market share leader in the estimated $15 billion plus ADHD market will lose patent exploration in 2023. Despite the incursion of generic therapies in to the ADHD space, the leading ADHD clinicians that we have spoken with have expressed strong interest and a solid support for methylphenidate product with a highly differentiated feature of improved duration of efficacy and consistent delivery especially considering the drawbacks of some of the current methylphenidate therapy. As announced on October 11, we received clearance from the FDA and we initiated a clinical program for KP415. The Phase 1 proof of concept human clinical trial are to begin shortly, and data will be available prior to year-end. We anticipate beginning pivotal efficacy trials in 2017 within [sum] to target to file the NDA for KP415 in 2018. As announced on October 18, the licensing agreement with Acura Pharmaceuticals calls for Acura providers’ proprietary aversion technology to KemPharm with developmental and commercialization rights to up to three IR product candidates containing two of KemPharm’s opioid pro-drugs. We will solely own the intellectual property resulting from any new product development. For those unfamiliar with the aversion technology, it is a patented composition of commonly used active and inactive pharmaceutical ingredients that are intended to provide abuse deterrent features for the orally administered pharmaceutical drug products. These aversive barriers are designed to discourage common methods of opioid product misuse and abuse including intravenous injection by forming a viscous gelatinous gel mixture when tablets and capsules are dissolved in solvent suitable for injection, as well as intranasal snoring by inducing nasal discomfort when tablets and capsules are crushed and snorted. Of importance, Acura has successful demonstrated that aversion technology does not have as good effect which is critical for the ongoing development of KP201/IR as well as our additional IR opioid pro-drugs. In combining our LAT pro-drug technology with an aversive formulation, we believe the resulting product could serve to raise the bar on abuse deterrents by integrating physical barriers which directly address common routes of abuse such as injection. With a molecular barrier that ensures that the product can only release the active opioid at levels of therapeutic effect when ingested orally as directed. Said another way, we believe LAT plus aversion may create a shield that will meet or exceed the current FDA standards for abuse deterrents. KP201/IR is our acetaminophen-free immediate release hydrocodone prodrug, designed for the treatment of acute pain, which is now been developed with the aversion technology. KP201/IR offers several potential market and patient advantages. It is been designed to be abuse deterrent opioid that may offer comparable efficacy to Vicodin, Norco and Lortab, but with the potential safety advantage of having no additional acetaminophen. This 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 and prescription combination products, and required warnings to be added to the labels of all acetaminophen prescription products. Despite this, there are still currently no approved immediate release hydrocodone related product in the US, potentially enabling KP201/IR to be the first to market, while also delivering clinically demonstrated abuse deterrent capabilities. KP201/IR has a compressed development timeline due to the face that we are able to leverage non-clinical and clinical data generated from the development of Apadaz, including data from the KP201.A03 intranasal pharmacokinetic study. This study was designed to compare the amount of hydrocodone released from KP201 to the amount of hydrocodone absorbed from hydrocodone bitartrate both without acetaminophen after intranasal administration. The study demonstrated a statistically significant reduction in drug liking Emax, Cmax, a delay in Tmax and a significant decrease in total exposure to hydrocodone especially at earlier time points. We believe that this dataset aligns with the division’s criteria for achieving abuse to term product labeling for this type of product which is different with Apadaz. Upon acceptance of the KP201/IR IND, our plan is to initiate human clinical trials in 2017 with an NDA target over 2018. Importantly, the development plan for KP201/IR and all the anticipated timelines account for the addition of aversion technology. While KP201/IR and KP415 are now our co-lead product candidates, KP511/ER remains an important product for KemPharm and we are continuing our investment in the development of KP511 an abuse-deterrent extender release formulation of KP511. As announced in June, we reported positive results from our Phase 1 proof of concept trial KP511, which demonstrated that KP511 affectively released the active hydromorphone in to the blood stream while no intact prodrug was found in the systemic circulation of any subject. The equivalent doses 8 mgs of KP511 and 4 mgs of Dilaudid Oral Liquid were bioequivalent with regard to overall hydromorphone exposure. In the trial, KP511 demonstrated a similar safety profile as Dilaudid, and was well tolerated with only adverse events reported typical for oral opioids. These favorable results indicate that KP511 has the potential to be a differentiated product with the potential abuse-deterrent and patient benefits offering KemPharm an opportunity to capture share of the estimated $350 million hydromorphone market. It is the need to add an external ER technology, as well as the investigation of the potential for both overdose protection and the limitation of opioid induced constipation that is required KemPharm to extend the original timeline for this product candidate. KemPharm now anticipates filing an NDA for KP511/ER in 2019. In review, KemPharm’s development pipeline has never been stronger. We have two assets in KP415 and KP201/IR that will enter human clinical trials in 2017, with KP511 reporting human abuse liability data in the first quarter of 2017. Assuming that each progresses as planned, KemPharm will be in a position to file two NDAs in 2018 and one in 2019. With that, I’d like to hand the call to Dan Cohen, who will provide an update on the Apadaz regulatory situation. Dan?

[Dan Cohen:]

Thank you Travis. As we announced on November 3, KemPharm has responded to the FDAs complete response letter for Apadaz through the initiation of a formal dispute resolution request going as an FDRR through that process. This followed the completion of an end-of-review meeting in August of 2016, which the FDA provided the company with a more complete understanding of its assessment of the NDA. The deal was submitted in accordance with the FDRR process that exists within the FDAs center for drug evaluation and research. FDA regulation provide this mechanism for those seeking regulatory approval of the drug product pursuant to an NDA to obtain formal review of any agency decision or raising matters with the subsequent levels of the agency. At this point of process, we are unable to forecast either the length of the review or anticipate when the FDRR process will be completed. It may be short or could take several steps that has the possibility of taking up 12 months. During this time, the FDA typically requests that companies do not comment during the ongoing review. Our intent is that the next announcement on Apadaz will be after the final determination of the FDRR. With that, I will hand the call over to LaDuane Clifton, who review our third quarter financial situation. LaDuane?

[LaDuane Clifton:]

Thank you Dan and good afternoon everyone. For the third quarter 2016, KemPharm had a net loss of $13.4 million or $0.92 per basic and diluted share. The net loss was driven by an operating loss of 10.4 million, net interest expense of 1.4 million, and a fair value adjustment expense of 1.3 million. The operating loss included $3 million of severance expense associated with our deferral of commercial operations and the realignment of resources which has been previously announced. Total cash as of September 30, which included cash, cash equivalents, restricted cash, marketable securities and long term investments was approximately 92 million, which was a decrease of 10.6 million compared to the prior quarter of June 30. One of the interesting item was that our shelf registration was declared effective by the SEC on October 17, as well as we signed a sales agreement for an after-market offering on October 3 in conjunction with that shelf registration filing. While we have no plans presently to utilize this, the filing of the shelf registration is considered a good housekeeping and provides the company with flexibility to more quickly respond to advantageous financing opportunities should they arise. Overall, the strategic realignment of our investment priorities place KemPharm in a solid position in financial resources needed to fund our development and operating activities through the end of 2018. I will now return the call to Travis.

[Travis Mickle:]

Thank you LaDuane. We accomplished much during the third quarter, and I believe KemPharm is the stronger company as a result. Our pipeline is deep with multiple differentiated products, with which they potentially reshaped the markets and treatment indications for which they have been designed. Additionally, we secured a licensing agreement with Acura Pharmaceuticals which offers the potential to enhance our entire IR opioid prodrug franchise. Looking ahead to the fourth quarter and 2017, we anticipate multiple clinical milestones for both KP201/IR and KP415 as well as KP511 that if the data are favorable, we’ll greatly enhance the value of each product while empowering KemPharm with three late stage drugs that address unmet medical needs in large established markets. As I said at the start of this call, we’ve begun a transformative period for KemPharm, as we have focused our product priorities and added to our formulation capability. We look forward to continuing to keep you informed of these ongoing clinical progress and over our novel prodrug product candidates. With that I will now open the call to your questions.

[Operator:]

[Operator Instructions] And your first question comes from Randall Stanicky from RBC Capital Markets. Your line is open.

[Unidentified Analyst:]

This is Matt filling in for Randall. So I just had a few questions that more related to your reselling prioritize pipeline products. KP415 methylphenidate product, you talked about marrying Vyvanse in terms of commercial launch. What gives you the confidence in that and is there a subset of methylphenidate users that you are targeting, the 4.2 billion you talked about. And then if you could just go over why KT511, the NDA was extended to 2019 versus 2018 before, I didn’t quite catch that?

[Travis Mickle:]

So the first part of your question, the target product profile for KP415 has been designed around some of the similar attributes that we’ve seen for Vyvanse. But in particular in looking at duration of action for the methylphenidate space will be especially important and that’s in the feedback we’ve received from key opinion leaders and thought leaders in this space, as well as some of our preliminary research that we’ve done. The potential market here really is asserted by all of those individuals that take methylphenidate that potentially could again need a longer duration whether that be an improved onset or total duration of action for that particular product, as well as something that’s more consistent in its deliveries in the current formulation based technologies. But specifically, about 40% of methylphenidate patients only respond to methylphenidate. So they can’t switch and take Vyvanse as an opportunity to have along the duration. So I think really if you look at this market, that would be your lowest hanging fruit as it were and you could focus then efforts to expand upon that potential. And then to answer the last part of your question, when we provided our updates in September on the clinical progress of the organization and commercial opportunities, we discussed the need to deprioritize or move KP511 a little bit further back and not to deprioritize the product but to move it further back in order to explore further the extend and release technologies that we’re looking at and incorporate those as well as investigate overdose protection that may be enhance the molecule as we’ve seen pre-clinically and the possibility of a lower incidence of opioid induced constipation which we’ve also seen pre-clinically.

[Unidentified Analyst:]

Can I just have one more, so what are your expectations of cash burn over the near term?

[LaDuane Clifton:]

Our cash burn as we’ve said prior quarter remains around I’d say in the 10 million to 12 million range per quarter, and certainly what prevailed during this Q3 and so we expect that is (inaudible).

[Operator:]

And your next question comes from Marcus Ho from Oppenheimer and your line is open.

[Marcus Ho:]

Just a question on Apadaz as far as the FDRR goes, can you may be talk about what will be considered the best case scenario? What would that entail in terms of this kind of development of Apadaz going forward? And then I had a question on cash, is the current cash good for all the milestones that you have listed?

[Dan Cohen:]

First of all, I would refer you back to our press release last week when we described the filing for the FDRR and it contains details. And obviously we’ve indicated that our questioned deals with the new term language this [period] that we have with the division and we hope to resolve those questions regarding what language is appropriate in Section 9.2. The best case is obviously that they agree with our interpretation and we will work through that process within the coming weeks and months.

[LaDuane Clifton:]

To answer the rest of your question around that, if once you have a resolution in assuming the best case scenario as Dan outlined it there, you would still have to resubmit the NDA. Again this would be in response to the CRL, so you would assume if it’s a labeling discussing, it’s a two month review process. So there’s not a lengthy expectation (inaudible).

[LaDuane Clifton:]

And then Marcus in regard to your cash question, as I mentioned, cash will take us through 2018 and so that does cover the milestones through 2018 that Travis mentioned. So clinical trials, the cash we need to prepare the NDAs or 201/IR (inaudible) are milestones that go past that in to 2019 like what we talked about at 511 are not contemplated in that.

[Operator:]

[Operator Instructions] I am showing no further questions at this time. I would now like to turn the call back over to the presenters.

[Travis Mickle:]

Thanks everyone for attending the call today, and I appreciate the very good questions. Look forward to updating more in the very near future. Thank you.

[Operator:]

Ladies and gentlemen, this concludes todays’ conference. Thank you for your participation and have a wonderful day. You may all disconnect.