Zevra Therapeutics, Inc. (ZVRA) Q3 2019 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by and welcome to KemPharm’s Third Quarter 2019 Corporate Update. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to your host, Jason Rando. Sir, please go ahead.

Good evening and thank you for joining our call today to discuss KemPharm's third quarter 2019 Financial and Corporate Results. Before we begin, 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 are made pursuant to the safe harbor provisions of the federal securities laws and represent management's current expectations. Actual results may differ materially. KemPharm disclaims any obligations to update or revise its forward-looking statements, except as required by law. More complete information regarding forward-looking statements, risks and uncertainties can be found in the reports KemPharm files with the SEC, which are available on KemPharm's website at www.kempharm.com, under the Investor Relations section. We encourage you to review these documents carefully. Speaking on today's call will be Travis Mickle, KemPharm's President and CEO; LaDuane Clifton, CFO; and Rusty Johnson, Chief Business Officer. Following the remarks, we will open the call to your questions. With that, it is my pleasure to introduce Travis Mickle.

Thanks, everyone for joining today. This will be a fairly short call as while activity internally is very high, we know pretty much where we sit today and what our priorities are. We also won't be providing a general overview today. If you are new to the KemPharm story, I please ask that you refer to our corporate deck in our previous disclosures that can be found on our website. There will be a number of various topics that we’ll be addressing, like to jump right into it and move to Slide 5 please. So, as expected focus today, at least initially on the partnership that we announced back in September, a partnership with GPC. Most of our activity right now is focused on the KP415 NDA filing. We believe GPC is fully up to speed, and we're working with them to finalize the various sections of the NDA. While time is critical for both parties, any potential missteps here are far worse than any sort of minor delay in the timing. So with that in mind, together with GPC, we believe that the most likely timing of the NDA filing will be on or around January of next year. And certainly could be sooner or certainly a little later. But as you may already know, in the agreement the decision of when to file actually lies entirely with GPC. In addition to the NDA filing, we are working with GPC to prepare for commercial validation, and ultimately commercial supply. A little unexpectedly, GPC has asked us to manage this effort, which we believe benefits all of us given our technical expertise and experience with KP415 to-date. We also expect that we’ll be able to move more to more fully discuss and disclose the commercial launch of KP415 and the plan behind it once GPC has deemed it appropriate to do so. It's certainly something worthwhile to stay tuned into. As we updated recently, KVK has made some good progress with stocking and managed care access, an awareness campaign is underway and with that, we believe that Apadaz has officially launched this quarter as we anticipated when we entered into the agreement last year. With that in mind, we'd like to remind folks on the phone of some of the economics of the KVK License Agreement. Specifically, there is a real potential for the $2 million milestone to be achieved in 2020, which could be followed by up to the $1.4 million in reimbursements, and subsequently to that a potential profit share of up to 50%. As with the KP415 commercial efforts, we work closely with KVK and will provide updates as we can. At this point in the call, I'd like to turn it over to LaDuane Clifton, our CFO. LaDuane?

Thank you, Travis, and we'll go quickly to our results. Q3 is actually the first for KemPharm and that we reported revenue for the first time, which totaled $11.5 million. And of course that was revenue generated under the KP415 License Agreement, the upfront payments, plus the additional reimbursements and consulting services as Travis mentioned earlier. That resulted -- led to net income of $3.1 million for the quarter or $0.09 per basic share, $0.06 per diluted share. Along with that, we also saw R&D expenses for Q3 of $3.6 million, a drastic reduction compared to the same quarter in 2018 which really was based on the completion of the clinical phase for KP415 earlier this summer, and so you see that flow through in the reduction. Also G&A expenses were $3.6 million roughly on par with the prior-year Q3. There was a modest increase, but that increase really was related to professional fees, for the licensing process that was underway, and of course that ended successfully with the GPC license. We did have a decrease in personnel costs, and I'll touch based on that in a moment. At the end of the quarter, we ended with cash of $7 million. Looking then for more update on our cash runway, our cash runway is really one of the biggest things in that forecast is our near-term debt obligations. But along those lines, we've been working very hard this year to reduce the operating spend. Specifically, we've taken workforce reductions of 33% as well as other G&A cost reductions. We've also as I mentioned, concluded the clinical phase of 415, so that R&D expenses are reduced. And so the next section here, the near-term cash from the KP415 License Agreement is also an important part of that cash runway. And of course as you know, we had a milestone payment up front of $10 million and then there's another potential milestone payment at acceptance of the KP415 NDA. In addition to that, we will continue to see a flow of cash into KemPharm as additional cost reimbursements are received from GPC and as Travis mentioned again, we will actually be recording an earning consultation fee revenue for our continuing work in these efforts. All of that together then goes into the forecast as I mentioned here where current cash will take us into but not through Q2, and really, that's due to approximately $9.2 million of principal and interest payments due in the first half of 2020. So, debt obligations, of course, is of a high priority to the company. And we've been working very hard on these issues and trying to bring around an appropriate solution best for shareholders. And so currently to address the near-term cash runway, we are in negotiations to push out the principal and interest payments due in February in June respectively with a goal of extending our cash runway past the approval of 415. So that would essentially take a cash runway into the beginning of 2021. If successful, our actual cash burn could be as low as $1 million per quarter and that's primarily because of all of the reimbursements that we believe will be coming to us under the GPC License Agreement. In addition to that, we also recognized the need to start now on looking at options for addressing our debt obligations in totality. And so we've actually begun that processes well, one of our first steps is that we've engaged Cowen who has worked with a company in a number of transactions through the years to assist us in addressing the larger portion of the debt. And so we would hope to have that process conclude potentially prior to KP415 approval. So we will provide updates on that as the process begins in earnest. With that, I'll turn it back to Travis.

Thanks LaDuane. As I mentioned earlier, while there is a tremendous amount of internal activity, we know with nearly 100% certainty what our priorities and goals are. Well, we are working hand in hand with our partners to fully maximize the value of the licenses for all stakeholders. To that, we need to file the KP415 NDA possible as soon as possible. These two licenses will account for substantially all of our near-term value. In order to accomplish these goals, we must also address both the near-term and long-term debt while still balancing value creation and shareholder needs. While nothing is certain, we believe that we have already made good progress to that goal and could be bringing a well respect and bringing a well respected financial advisor along in the process certainly helps further guide us down that path. At this point, it concludes our formal presentation. I welcome any questions if we should have them.

[Operator Instructions] Our first question comes from the line of Randall Stanicky of RBC Capital Markets, your question please.

Hey guys, this is Dan Busby on for Randall. A few questions for me. First on KP415, can you give any more detail around the final gating items there before you file, you have any further meetings planned with FDA or is it more a matter of just getting your ducks in a row? And then separately, what's the latest plan for KP484?

So as regards to the NDA filing, as you recall, we just completed the license agreement in September, an NDA and especially this case, this isn't certainly a 505(b)(2) filing. The NDA here is a tremendous heft. So getting them fully up to speed getting their consultants and advisors fully up to speed allowing for them to review comments and for us to incorporate, has been fairly consuming as far as time goes. So what I would, what we’re doing is to get to finalization, there is no FDA meetings, there's no additional need for any additional work. It's just merely getting your ducks in a row, making sure it's the best filing you have, the message is clear. And then as well taking commercial feedback on the potential label. So all of that needs to be done as quickly as possible and we think that's, that's early next year, more than likely.

Okay, and on KP484?

Yes, on KP484, we don't have any guidance says to that yet. There's several other activities that are going on in the commercial side. So once we were able to provide a little more clarity on there, I know there certainly is interest. That's why they licensed the product in the first place. But the timing and how that will work, we'll have to see, there could be some potential other activities with 415. That may supersede that and that could be a more value to this license for KemPharm. So again, we'll provide the guidance along the way of what's going on and where we believe the product will, the products here will ultimately be pulled through.

Okay. And then just a couple of questions on Apadaz. First, as it stands today, what percent of the overall hydrocodone APAP market, you have access to with preferred formulary status. And then if you could give any color around your and KVK’s intermediate and long-term coverage targets there, just trying to get a sense of how quickly this product could potentially ramp?

Well, we don't have the complete clarity with KVK. We certainly work with them on this whole process, but we know and have reported before that we have through the MMIT database seen about 70% coverage of benzhydrocodone our authorized generic versus that, relative to hydrocodone APAP. So, that's where we know we are, we've confirmed in many cases, large plans like Aetna, Cigna, we are on a preferred generic tier with those particular products. And we are in a preferred drug list and Medicaid in Alabama and Utah. So, we're making good progress certainly with KVK’s guidance here. Where do we sit as far as pull-through, I mean that's yet to be determined.

Okay, that's helpful. Thank you.

Thank you. Our next question comes from Oren Livnat of H.C. Wainwright. Your line is open.

Hey I was wondering if you could just help me with some of your cash flow assumptions and I do have a couple of follow-ups. Is your runway into second quarter or longer, if you can renegotiate the debt near-term. Is that assuming certain milestones come in? Or are milestones upside? And can you just remind us what milestones you're expecting based on hitting certain targets in the next year?

Yes, the cash runway includes the NDA acceptance milestone that we will anticipate potentially in Q1 as Travis's mentioned, and then it also contemplates the $2 million milestone under the Apadaz license agreement which we expect to receive during that first half of 2020.

[Operator Instructions] Next question comes from Scott Henry of ROTH Capital. Your line is open.

Thank you. Good afternoon. I just wanted to kind of follow-up on a couple of the prior questions. I guess first, did I hear you correctly, you expected to get the quarterly burn down towards $1 million a quarter?

So, Scott, if we're successful in being able to push out the principal and interest payments, then our operating costs being offset by the revenue were able to generate or other reimbursements under license agreement would bring that cash burn down to that level.

Okay, so that would imply that those reimbursements are not only covering R&D, but they're also covering a lot of the G&A, is that a fair statement?

Right. So the license agreement provides that, for example, when we help GPC on the commercial, managing the commercial manufacturing for KP415 that we’re able to build a consultation fee. And that is that, that's cost plus margin, essentially. And so that is revenue to the company and therefore covers a large portion of our G&A.

Okay, and that expense reimbursement obviously for 415 would probably start to end after the filing if the work is done, and then does it continue on with 484 and at the same level?

So you're right about 415 development cost, they will naturally come to an end. However, commercial activities are going to continue up to and even past launch potentially. And then our ability to build consultation services is also ongoing as we support the NDA through the review process and again are part of that managing the commercial prep. With regard to KP484, once that program begins, then in a similar way, the licensee GPC would be paying for all the development costs. And then we would be billing consultation fees. And in that case, that's really managing the whole program from its inception through the clinical phase and on into up to approval just like with 415. So, it does continue at a similar level.

Okay, and have you given any disclosure on the magnitude of the milestone for the NDA acceptance? I don't recall seeing that, but I may have missed it.

No, unfortunately, that was one of the items that was redacted at the request of GPC, and so it's not something we've been able to disclose.

Okay. Yes, I guess when I read the press release, it talked about initiating a process to explore addressing the debt in its entirety. Now, the natural options would be to issue more debt or to issue equity in exchange for debt. Are there any options outside of the normal course, that you're considering any non-dilutive options? Or just curious the way I read as if there maybe?

Yes, another alternative, right top of mind would be potentially a royalty financing of some kind or a license monetization, so that's another option, we think that would be non-dilutive. And then, one of the reasons we're working with Cowen is to bring to bear creativity and see what else could we do in a way that is best for the shareholders.

Okay, great. Thank you for that additional color. I think that’s it for me. Thank you for taking the questions.

Yes, thanks.

Thank you. We have a follow-up question from Oren Livnat of H.C. Wainwright. Your line is open.

Yes, thanks. I got cut off a little faster than expected last time. Just on Apadaz, if I could follow-up. I know you're not running the show exactly on the commercialization here, but can you just give us an idea of just the basic model and approach to market here? I mean, obviously, you've got some coverage. I don't think there's a big sales force calling on docs, right? So just explain in these areas, in these regions that you're piloting or target -- or KVK is piloting and targeting and what's the mechanism to drive prescription uptake? Are they going to be getting substitution at the pharmacy level? Does it have to be written as prescribed as written Apadaz, do someone call a doctor back? Just help us understand how this goes down? Thanks.

Sure, so I'll take a first pass at some of that. And I know Rusty is on the line and he can assist as well. Basically, I think you're right, Oren, there is no sales force here. The outreach really is related to manage markets, so you're reaching out to PBMs and payers to gain additional access and to the extent that you can work with them to create a preference for Apadaz or the authorized generic, then we're looking for those relationships. The second part of that I'd say is making both pharmacies and prescribers aware that Apadaz is available. And so again, we're not being very promotional. We're just simply trying to let folks know that there is something available there that they should consider. Given this environment, I'm sure you can appreciate the sensitivity to that. And so as you look then, when we talk about our current access through the Medicaid PDL in Alabama and Utah, what we understand from KVK is they're focusing some of those initial awareness efforts where they have the most formulary access and in this case, I know that Alabama and Utah are part of that. ,:

Yes, I think you covered it pretty well LaDuane. But I would add the following. Where we have formulary access and in a preferred position, it is when you talk to some of the managed markets folks, I think all of these entities believe that they have excess utilization of hydrocodone APAP from misuse diversion, a variety of reasons. And there's elements of Apadaz that I think people could conclude that maybe help reduce that, help lower essentially improper utilization. So there's a financial incentive to large plans to perhaps work on that. So we're trying to help KVK pursue that angle on a large scale basis as well, so that's sort of the process. Hope that helped.

I mean, I guess I could just follow-up. If a doctor is not writing Apadaz, let's say for some time, because awareness takes time. If they write hydrocodone APAP scripts in an area, in Alabama or Utah, for example, and it gets to the pharmacy and their insurance plan will that say, nope, pharmacist, you need to call that doc back and tell them to write Apadaz, is that what we're thinking is going to happen here or something else?

It's more complex than that, Oren. And I don't know that this is a good venue to try it. But there's a lot of things that can be done to get the right result.

All right, thank you.

Thank you. At this time, I'd like to turn the call back over to management for closing remarks.

Thank you very much. And thanks everyone for your time today. We certainly are very excited here and can't wait to be able to provide some updates over the coming months on all of the various topics we discussed today. So, thanks again and have a nice evening.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.