Elanco Animal Health Incorporated (ELAN) Q2 2016 Earnings Report, Transcript and Summary

Welcome to the Second Quarter 2016 Financial Results Conference Call and webcast for Kindred Biosciences. At this participants have been placed on listen-only mode. At the end of the prepared statements participants will have the opportunity to ask questions. [Operator Instructions]. It is now my pleasure to turn the call over to Kindred Bio's CEO and President, Richard Chin. Dr. Chin, please proceed.

Thank you, operator. Good afternoon and welcome to our second quarter 2016 financial results call. Joining me today from Kindred Bio's management are Denise Bevers, our Chief Operating Officer and Wendy Wee, our VP of Finance. Please note that our remarks today include forward-looking statements and that actual results could differ materially from those projected or implied in our forward-looking statements. For a more detailed description of important factors that could cause actual results to differ, please see the forward-looking statements in today's press release and a note on forward-looking statements in our SEC filings. I will begin the call with a general corporate update. Denise will follow with an update on our programs, and Wendy will conclude with second quarter financial highlights. We had a very productive and exciting second quarter, highlighted with the announcement in May of positive results from the pivotal study of Mirataz, formerly known as KIND-010, a transdermal gel for the management of weight loss in cats. Mirataz is the second consecutive successful program in our pipeline and we are excited about its market potential as inappetence serious and wide spread unmet medical need in cats. Building on these positive results, we have already filed the chemical manufacturing and controlled technical section of the new animal drug application with the FDA for Mirataz and I am happy to report that we remain on-track to file the effectiveness and safety technical sections in the third quarter of 2016. We expect to launch Merataz in the first half of next year. We believe there is substantial market potential for Merataz. There are an estimated 9 million cats in the United States with inappetence of whom about a third are currently treated. As I mentioned, inappetence is a very serious unmet medical need in cats, which was reflected in the remarkably rapid enrollment of the pivotal study. In many cases, inappetence can lead to hepatic failure in ultimately death. Inappetence is one of the leading causes for veterinary visits by cat owners and based on our market research, a veterinarian will see on average seven cats per week with this condition. Currently there are limited options for the treatment of inappetence in cats, none of which include an FDA approved option that alone are transdermal option. Our transdermal gel is highly attractive to veterinarians and pet owners alike given the daunting and sometimes hazardous [ph] alternative of administering a drug orally using our Aquazorb [ph] technology, which results in high and very predictable absorption. About 80% of veterinarians surveyed indicate their intent to use our product. Denise will further discuss the launch plans of Merataz later in this call. With regard to our other lead product, I am pleased to report continued progress towards commercial launch of Zimeta, dipyrone injection for the treatment of pyrexia in horses. All the major technical section of the NADA has been submitted to the FDA, based on the feedback from the FDA, which has been positive to date, we anticipate approval of Zimeta in the first half of 2017. At this time, there is no FDA approved product for the treatment of fever in horses, representing a yet another significant unmet medical need. There are approximately 8 million to 9 million horses in the United States and our market research indicates that approximately 10% of them are treated annually for fever. Impressively more than 80% of the veterinarian’s survey indicated their intent to use Zimeta within the first year following its launch. With Zimeta and Merataz, we are on track to commercialize two products in the first half of 2017. As exciting as that is, it is even more impressive that we will accomplish this less than five years since the founding of the company. This is a clear demonstration of drug developed with capability, without a doubt we have one of the best R&D teams in the entire animal health sector. In addition, as you will hear from Denise, we have more then 20 additional programs in development, which we believe maybe the largest pipeline in the veterinarian industry. We are also pleased to report that the commission – commissioning of the state-of-the-art GMP biologic manufacturing plant is almost complete, as I have mentioned in the past, the plant is one of the most advanced cutting-edge plants in the world. In addition, it was built in record time and in a capital efficient manner. This facility is a cornerstone for our biologic strategy and will be one of the first in the world dedicated to veterinary biologics. On the finance side, which Wendy will further discuss, we continue to be well capitalized and capital efficient with a very clean balance sheet. We have no debt and we have no royalty or milestone payments due to any partners. So in summary, we had a very successful second quarter and we are very well positioned for success. With that, I will now turn the call over to Denise.

Thank you, Richard. As Richard said, this is been a very productive and busy second quarter for Kindred Bio. In anticipation with FDA approvals of Zimeta and Merataz, we continue to prepare for commercialization of both products in the first half of 2017. We recently hired our Head of Commercial Operations, and our Director of Veterinary Technical Services, both of whom bring to the company industry experience and expertise. To round-out our Zimeta launch team, we anticipate initially hiring a three to five person sales force. Regarding Merataz, we continue to pursue parallel path to commercialization. We currently have ongoing due diligence for potential partnering of the product and in parallel we are making preparations for launching the product ourselves, relying mostly on distributor representative. The decision will be entirely based on the economics. We are really in a fortunate position where we can a choice based on both the short and the long-term economics. On the operation side, we are continuing to make excellent progress, thanks to our world class team. We initiated the pilot field study at epoCat, feline erythropoietin, for the control of non-regenerative anemia in cats. This study is underway at several clinical sites. We conducted a pilot study to demonstrate the effectiveness and safety of two formulations of KIND-014, a development candidate for the treatment of equine gastric ulcers. Both formulations were well-tolerated and showed positive results for efficacy, as measured by gastric pH. We initiated a pilot field study earlier this year, which having already met enrollment is expected to be completed in the third quarter of 2016. We are finalizing the formulation for KIND-015, a development candidate for metabolic syndrome in horses, following which we expect to initiate a pilot field study by the end of 2016. In June 2016, we announced the initiation of a pilot field study of atopic dermatitis in dogs, the purpose of which is to assess safety and efficacy of several molecules, including anti-cytokine antibodies. Based on those results, we will select certain product candidates for further development. We have completed the first stage of a pilot field study in sick or septic foals to assess the safety and efficacy of anti-TNF monoclonal antibody. All five foals enrolled survived to day 7, which was primary endpoint of the study. The second stage of the study is planned for early 2017 during the next foaling season. We are continuing to make great progress in our biologics program. Our antibodies against cytokines and checkpoint inhibitors are progressing on track, and initial pilot studies for some of these antibodies are anticipated in 2016. In the human pharmaceutical sector, biologics have now grown to dominate the list of the top 10 best selling drugs, and we believe a similar trend will unfold in the companion animal therapeutic space and as our pipeline demonstrates we are establishing ourselves as a leader in this sector. Our team worked extremely hard during the first half of 2016. Looking forward we promise to deliver more of the same in the second half of this year. With that, I will turn the call over to Wendy for an update on our financials.

Thank you, Denise. In the second quarter, we reported a net loss of $4.9 million or $0.25 per share, as compared to a net loss of $6.9 million or $0.35 per share for the year ago period. On the first half basis, the net loss was $11 million or $0.55 per share, as compared to a net loss of $13.6 million or $0.69 per share for the same period in 2015. Total research and development expenses for the three and six months periods were $3.2 million and $6.6 million respectively, down from $5 million and $9.8 million for the same periods in 2015. Stock-based compensation expense was $0.4 million and $0.7 million for the second quarter and first half, down from $0.5 million and $0.9 million for the same periods in 2015. The decrease in R&D expenses is primarily due to lower field trial and material costs including consulting expenses, reduced payroll and related expenses stemming from our restructuring in January and lower stock based compensation expense. The prior year’s expenses also included costs related to pivotal studies for programs that we completed or discontinued. Total general and administrative expenses were unchanged at $1.9 million and $3.9 million in the second quarter and first half on a year-over-year basis. In 2016, higher payroll, corporate and marketing expenses were offset by lower consulting, legal and professional fees, as well as lower stock-based compensation expense. Stock-based compensation expense was $0.5 million and $1 million for the three and six months periods ended June 30, 2016, as compared to $0.6 million and $1.2 million for the same periods in 2015. We recorded a restructuring charge of $655,000 for payroll related costs, which was paid in the first quarter of 2016 in order to streamline our development programs and extend our cash runway. As of June 30, we had $66.3 million in cash, cash equivalents and investments, compared with $77.6 million as of December 31, 2015. The decrease was primarily due to cash used in operating activities of approximately $10.6 million. For the full year 2016 we reiterate our previous guidance for operating expenses to be in the range of $24 million to $26 million, excluding the impact of stock-based compensation expense and the impact of acquisitions, if any. Expenditures for the remainder of the year are expected to include regulatory costs associated with the filing of registration of Mirataz, preparing for the commercial launch of Zimeta, as well as the continued development of our pipeline candidates. We have a lean operating model that enables us to develop drugs in a cost sufficient manner and minimizes cash burn. As Richard mentioned, we have a clean balance sheet and no debt. Our strategy is to develop products between $3 million to $5 million on average and within the timeframe 3 to 5 years, underscoring our short development cycle and low development cost. With that, I will turn the call back over to Richard.

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

Thank you, operator. With our progress as we deliver on our strategy of rapidly and efficiently developing animal health therapeutics. Our deep pipeline is supported by our strong cash position and features an industry leading small molecule and biologics programs with substantial revenue potential. As I stated previously, we have the full position in the companion animal space and we plan not to give away a lead. Thank you for your continued support.

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