Zevra Therapeutics, Inc. (ZVRA) Q4 2016 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the KemPharm Q4 2016 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 follow at that time. [Operator Instructions]. I would now like to turn the call over to Dan Cohen, the Executive Vice President for Government and Public Relations. You may begin.

Good afternoon everyone, and thank you for joining our 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 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. 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 more complete information regarding forward-looking statements, risks, and uncertainties in the reports KemPharm files with the Securities and Exchange Commission. 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 with the conference call. The presentation is also 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 Chief Executive Officer, who will provide an update on KemPharm's corporate and clinical development achievements; 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.

Thank you, Dan, and welcome everyone to KemPharm's fourth quarter and year-end 2016 financial and business update conference call. As Dan mentioned, we are providing a brief slide presentation to accompany today's remarks. From our founding in 2006, KemPharm has been and continues to be a product discovery and development company focused on building a portfolio of prodrug that are an improvement on currently approved drugs, and address unmet medical needs in large established markets. Our science seeks to improve the properties of existing drugs and our approaches to identify pharmaceuticals that address a large patient population where conversion to a prodrug that enabled better treatment outcomes, alleviate unwanted or unintended side-effects or enhance the marketability of the drug, especially those facing near-term patent expiration. Our value proposition offers an accelerated and derisk development timeline and composition of matter based patent protection on any new molecule we discover. This makes our prodrug technology a potentially compelling option for industry stars for new treatment options. Our internal focus is on developing prodrugs in the ADHD, CNS, and pain management spaces. However, any area where gaps and treatment combined with patent expiration really offers us an opportunity for prodrug technologies to improve drug performance and capture market share. One of the benefits of this approach is that it is a cost-effective development model. The time it takes to bring a new prodrug molecule from conception to NDA filing is roughly three to five years at a cost of between $20 million and $30 million, ultimately resulting in a potential new molecular entity with a significant product life. This development potential can be applied to a broad range of drugs, drug products in large markets where improvements and performance composition of matter based patent prediction along with development and cost efficiencies could enable the capture of significant value. As many of you already know, we accomplished this by using our Ligand Activated Therapy or LAT discovery platform. To create prodrugs by chemically attaching one or more molecules for what we refer to as ligands to an FDA approved parent drug. Our LAT discovery platform is simple yet elegant in design and is built on a 20-year plus foundation of research and scientific discovery that's been proven effective in numerous clinical and preclinical trials. Once we've identified the drug target, we use our LAT platform technology to create new molecular entity prodrugs by chemically attaching one or more molecules or ligand to the parent drug. So ligands are typically well understood. For instance, in the case of KP201/IR the ligand is benzoic acid, a widely used and extensively studied molecule which is known to be safe and essentially inert. When prodrugs are administered, targeted human metabolic process such as those in the GI tract separates the ligand from the prodrug and release the parent drug which can then exhert its therapeutic effect. KemPharm's ability to discover the unique parent drug ligand combination differentiates our prodrugs from other drug products in the market. Fundamentally, we create new molecules that can impart key advantages enabling the creation of potentially safer, more effective and therefore truly differentiated products. With our pipeline rapidly advancing in the clinic, we now have the opportunity to extend our LAT product discovery platform to additional drug targets and treatment indications. We intend to leverage our discovery expertise to create multiple opportunities to monetize our LAT platform. These opportunities include identifying new products for internal development which ultimately could be outlicensed or by discovering new prodrugs in partnership with other companies. While that remains our future, we now -- but now let's take a moment to review our recent accomplishments which I believe offer a validation of our prodrug strategy and showcases the underlying value of our company. The fourth quarter and early 2017 was the period of substantial accomplishment for KemPharm. We meet several key milestones which support the value of our development pipeline and our LAT prodrug platform. Specifically, during the fourth quarter we secured IND clearance and reported positive proof-of-concept clinical data for KP415. Our extended release, prodrug of methylphenidate for the treatment of ADHD, as well as received both IND clearance and fast-track status for KP201/IR, our single entity benzhydrocodone immediate release, abuse the prodrug for the treatment of acute pain. Additionally in January, a Phase 1 intranasal study of KP511, our investigational prodrug of hydromorphone for the treatment of pain demonstrated statistically significant pharmacokinetic and pharmacodynamics differences of abuse potential. Lastly, the formal dispute resolution request or FDRR filed on behalf of Apadaz continues to progress and we expect resolution prior to year-end. Over the next few slides, I will provide updates on most of these programs as well as anticipated development milestones and an outlook on the regulatory end-market landscape. KP415 is an extended released methylphenidate prodrug for the treatment of ADHD. We designed KP415 to address the unmet needs with currently marketed methylphenidate ADHD treatments which include onset, duration, and consistency of effect as well as the possibility of a lower abuse potential. As announced in mid-December, data from our Phase 1 proof-of-concept clinical trial indicated that KP415 demonstrated pharmacokinetic properties that produced earlier methylphenidate exposure followed by extended release of methylphenidate relative to the competitor Concerta. Although we still need to complete the planned pivotal studies with KP415, the data generated in this trial suggest that KP415 could offer ADHD patients an earlier onset of action with similar or better duration to Concerta. Together these properties are not available with any currently marketed or development stage ADHD products and could significantly differentiate KP415 in the market. During our December 14th conference call they discussed the KP415 studies, Dr. Scott Collins, Professor and Vice Chair for Research Strategy & Development; and the Director of the Duke University ADHD Program, noted that the data suggested that the prodrug design of KP415 could allow for once daily dosing with a potentially improved onset of action. As well the prodrug design of KP415 may also add significant benefits of a lower abuse potential which could be an important public health benefit. Dr. Collins comment align with the feedback from other thought leading clinicians who believe that early onset of action, durable therapy and once daily duration will be viewed as significant improvements in methylphenidate therapy for ADHD. If the pivotal studies of KP415 align with the generated data, we believe these properties can provide significant points of differentiation in comparison to currently approved products thereby enabling KemPharm with KP415 to potentially capitalize on key patient prescriber needs in the $13 billion plus ADHD markets. Given these factors, KP415 is one of the highest priority pipeline candidates and we believe our highest value product. Our strategy going forward is to continue the clinical development of KP415 with the next major phase being the initiation of the pivotal efficacy trial in the second half of 2017. Final data from this study is expected in the first quarter of 2018. In parallel, we plan to initiate several pharmacokinetic studies in 2017 with data expected throughout the course of the year. Studies will include urinary excretion study, disproportionality, food effect, steady state and pediatric pharmacokinetics among other studies. We also have an intra-phase 1 meeting plans or schedule for the FDA in the second quarter of this year; although this continues to point to us towards a potential NDA filing for KP415 in 2018. KP201/IR is our acetaminophen-free immediate release hydrocodone prodrug, designed for the treatment of acute pain. Like KP415 we achieved important milestones for KP201/IR during the fourth quarter including IND clearance to initiate human clinical trials and the granting of fast-track designation by the FDA. With these milestones, as well as the formulation work the eversion technology we remain in position to initiate the human abuse liability trial, KP201/IR in 2017 and anticipate reporting intranasal data from this study by the end of the year. We continue to target an NDA for this product in 2018 as well. As previously discussed, KP201/IR offers several potential market and patients advantages. It is being designed to be an 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 in prescription combination products, and required warnings to be added to the labels of all acetaminophen prescription products. Despite this, there currently are no approved immediate released 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 the abuse deterrent opioids is a strategic and interim decision process based on the Apadaz FDRR process, market and regulatory clarity as well as the change in political environment. 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 pharmacodynamics 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 meaningful statistically lower scores in the exploratory pharmacodynamics measures of drug liking, feeling high, overall liking and take drug again when compared to hydromorphone API. Furthermore, in a retrospected assessment of drug preference after the last treatment, a significant majority of subjects, 17 out of 26 prefer hydromorphone API over KP511 API, suggesting that KP511 may be less attractive for intranasal abuse. Several endpoints related intranasal irritation including nasal burning, need to blow nose, nasal discharge and facial pain were higher which really means more severe for KP511 versus hydromorphone API. All of these PK measures appear to align with FDA's current requirements to ADF labeling. Given the magnitude of the potential benefit that KP511 offered, we intend to develop both an extender release and an immediate release version of KP511. We anticipate filing NDAs for both of these products in 2019. In review, KemPharm's development pipeline continues to generate positive data showcasing the potential benefits that each asset offers in addressing important treatment opportunities and that we believe will lead to highly differentiated products that could enable us to capitalize unfavorable market dynamics. Looking ahead of the coming year, we anticipate reporting on several clinical and development milestones with KP415, KP201/IR and KP511 that should serve to greatly enhance the value of our product portfolio and the LAT prodrug platform. With that, I'd like to now hand the call over to our Chief Financial Officer, LaDuane Clifton, who will review our fourth quarter financials. LaDuane?

Thank you, Travis, and good afternoon, everyone. I will provide a brief overview of our results for Q4 and full year 2016. Additional details are available on our press release which was published earlier today. For the fourth quarter 2016, we reported a net loss of $10 million or $0.68 per share, basic and diluted share as compared to a net loss of $9.2 million or $0.64 per basic and diluted share for the fourth quarter of '15. The net loss for Q4 2016 was driven by an operating loss of $10.9 million, net interest expense of $1.8 million, offset by recognition of income from a non-cash fair value adjustment of $2.7 million. More specifically, loss from operations for Q4 2016 of $2.9 million was an increased loss compared to $7.3 million for the same period in 2015. The increase in loss from operations was primarily due to the $3.5 million payment made to license the aversion technology for years with potentially several of our product candidates, as well as an increase in personnel related cost for research development, general and administrative cost of about $600,000, driven primarily by an increase in headcount compared to Q4 2015. For the full year ended December 31, 2016, our net loss was $16.5 million or $1.13 per basic and diluted share, compared to net loss of $54.7 million or $7.42 per share for the prior year. The reduced net loss for 2016 was driven primarily by an increase in the income recognized due to non-cash per value adjustments, offset by an increase in operating expenses due to increased activity on our development programs for KP415, KP201/IR and KP511 as well as recognition of a non-cash loss on extinguishment of debt of $4.7 million, and an increase of $2.8 million in net interest expenses compared to 2015. Total cash as of December 31, 2016 which includes cash, cash equivalents, restricted cash, marketable securities, trade-day receivables and long term investments was $82.1 million, which was a decrease for our Q4 of about $9.9 million. Overall, following the recent strategic realignment of our investment priorities, our updated forecast indicates an expected quarterly cash burn at a rate of about $7 million to $9 million a 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. So with that, I will return the call back to Travis.

Thanks, LaDuane. The fourth quarter was very important for KemPharm as we met key data and regulatory milestones that serve to validate our prodrug development strategy and our value potential as a company. Looking ahead to the remainder of 2017 and in the early '18, we anticipate multiple clinical milestones for our prodrug development pipeline including KP415, KP201/IR and KP511 -- that if the data are favorable, could enable KemPharm to be in a position to file two NDAs in '18 and two additional NDAs in 2019. Considering that we announced our updated clinical development strategy in the third quarter of 2016, it speaks volumes about the efficiencies of our prodrug platform and our ability to rapidly advance programs from IND to NDA. As we consider extending our product platform to additional drug targets, KemPharm's ability to offer an accelerated and derisk development timeline, as well as compensation matter-based protection on any new molecule we develop could make our product technology a compelling option for capturing or extending market share in a number of high demand, yet innovation start of treatment indication. With that, I will now open the call up to your questions.

[Operator Instructions] Our first question comes from Ken Cacciatore of Cowen. Your line is open.

Hey, guys. How are you doing? Just had a question on 415 and a little bit of your description about earlier onset. It seems to be a little bit of backing away from the thought of longer duration Concerta. I just wanted to understand, are we just learning more about the profile, or longer duration that Concerta a bit more off the table? I wanted to know why that would be and maybe if it is, is that a matter of just optimizing the formulation, working on it? Because it feels like a better duration or longer duration would really open up that growing adult market whereas earlier onset would be something that potentially is a need in the pediatrics, but less so a need in adult. Can you just walk through what's going on there? Thank you.

Yes, sure. No, I don't think there is any walk away from the duration. I think the point of differentiation prior to the study was really our focus on the longer duration. We don't have as many data points past 12 hours that we would probably like to have and we have far more data points for our first study in the first few hours. So we know very well that we have multiple points of differentiation early and it appears to be that we could last as long if not longer than Concerta. I think we're not trying to give up anything here. I think in this case, we're really trying to look for what would be the first methylphenidate with onset as early as a half hour with as long as 13 hours or potentially -- in the pediatrics space, that's really as long as you can measure.

Okay. Just remind me, the next stage is? I guess can we not confirm before we continue to invest that it's longer duration? Or anything you would need to do to fair it out, or you're saying for pediatrics just as long as we can study it, can we study it in adults or figure out what's going on here with duration?

There's a well-established pharmacokinetic pharmacodynamics relationship between methylphenidate blood levels and effect. I think the pharmacokinetic studies that will play out over the rest of this year will give us more insight into what's happening beyond 12 hours. That's probably more valuable, to be honest, than the actual adult data that the pediatric studies are designed to really with the limitation, that's your last true time point that you could take is 13 hours.

Okay, great. Thank you.

Our next question comes from Randall Stanicky of RBC Capital Markets. Your line is open.

Okay, thanks. Good afternoon. This is Ashley [ph], right here on for Randall. I just want to know on cash. You mentioned that cash on hand should get you through 2Q 2019, but what are the assumptions around getting to that timeline? Does it include the progression of your preclinical pipeline products and as well as potentially successful results in the FDRR? And also, have you begun the reformulation process of Apadaz to incorporate the Acura versions in technology that you guys licensed? And what's the pass forward to that following reformulation?

Sure. The updated forecast really is a function of sort of looking at the studies. Obviously, 415 is our lead candidate and we continue to stay along those timeline and we're looking at our other investments there as well as we go. So that it's an iterative process like Travis mentioned. We really just took a fresh look at that and kind of updated the forecast based on what we expect. So we still are moving along the development timeline as Travis has outlined already. As far as the reformulation for Apadaz or really KP201/IR is part of that as well. We are working to employ the aversion technology, so that work is under way. Did I kept to all your questions, Ashley?

So does the cash guidance then -- what about in terms of the FDRR if you do get a successful result? Do you sell it back to also get you to 2Q?

Yes. There is no additional cash burn with a successful FDRR other than resubmission of the NDA and ultimately approval.

Got it. Okay, thank you.

[Operator Instructions] Our next question comes from Dewey Steadman of Canaccord. Your line is open.

Hi, guys. Thanks for taking the question and good afternoon. I guess, have you had discussions with prescribers and thought leaders in ADHD? And if so, what's their opinion on the KP415 profile? And then on a completely different subject, the R&D spend this quarter, I assume the majority of that dealt relative to previous quarters is due to the aversion payment. But can you comment on how involved the focus from Acura are in terms of the inversion technology? I'm just wondering just because you're exploring strategic options and things like that. Thank you.

To your first question, yes, we have explored with Kwell's [ph] KP415 profile. I did mention it very briefly. They are excited about both the potential for onset that's better than the current products, as well as similar if not better duration than the Concerta products. There's no current methylphenidate product that addresses both of those. Many of the current methylphenidate products, they may have labeling to 12 hours, but they don't have a robust effect through 12 hours. Many of them like Concerta, Focalin XR wear off prior to that. That's well understood clinically and something that they're concerned about. We're looking for a robust effect. Again, that's built on the fact that it's a prodrug, it delivers a consistent level throughout the course of the day and also gives us a better ultimate profile. They did also like the fact that it could be lower abuse potential because again, there's no methylphenidate product that has that. While that's probably not a selling feature, it is a nice to have. To the other point, I think financially, LaDuane, maybe you want to touch on the Acura and I'll take the second part of the question.

Yes. For sure the increase, you mentioned the R&D change relative to Q4 of 2015 and you're right, the driver there or the increase primarily is the Acura payment. As far as Acura's involvement -- and Travis can speak to this as well -- I immediately following having sign that agreement with Acura. Their team was available to us and we were able to quickly go through and gather information related to the formulation and I would say they have continued to assist us. Travis, you may want to add color to that?

Essentially it was a technology transfer of aversion for use in the IR space. There's no ongoing use of their expertise.

All right, great. Thank you.

There are no further questions. I'd like to turn the call back over to Travis Mickle, President and CEO for any closing remarks.

I appreciate everyone's time today. That concludes our call.