Good day, and thank you for standing by. Welcome to the KemPharm Second Quarter 2021 Results Conference Call . I'd now like to hand the conference over to your speaker today, Jason Rando, with Tiberend Strategic Advisors. Please go ahead.

Good afternoon, and thank you for joining our call today to discuss KemPharm's second quarter 2021 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 obligation 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 KemPharm's filings with the SEC, which are available on KemPharm's Web site under the Investor Relations section. Speaking on today's call will be Travis Mickle, KemPharm's President and CEO; and LaDuane Clifton, CFO. Following the remarks, there will be a question-and-answer session, which will include responses to questions that were submitted during the past week. With that, it is my pleasure to introduce Travis.

Thanks, Jason, and thanks, everyone, for joining this afternoon. I'll start with some recent highlights, many of you that are already aware of most of these, but I'd like to run through them very briefly. Of course, most of you are aware that AZSTARYS, our lead ADHD product that was approved back in March, was launched commercially on July 21st, a very exciting milestone for us. Our partner, Corium, announced that launch and we are excited to see how that progresses. We do expect to see royalties and sales milestones in 2022 and beyond. But as you'll hear in further update, that is probably the extent of any sort of projections that we can give at this time. Just as you may recall, the royalty rates on US sales go from the high single digits up to the mid 20s. And our AZSTARYS patents run until 2037. So sitting here in 2021 with a product that just launched, now we have a 16 year product life just a tremendous opportunity in front of us for AZSTARYS. We also heard in the second quarter, received notice that the DEA did take a recommendation from the FDA as to schedule SDX, or Serdexmethylphenidate, as a Schedule IV controlled substance. All methylphenidate products right now are Scheduled II. This is the only methylphenidate containing product that is a Schedule IV. It is remarkably beneficial. It means it has a lower potential for abuse when compared to other d-methylpenidate products and, in fact, lower than Schedule III product, and it's a key differentiator for AZSTARYS. Not only that, it's also a key value proposition for our other SDX based product candidates. I'd be happy to report and LaDuane will give us all the great details. We have a healthy balance sheet. We also have…

Thank you, Travis, and good afternoon. For Q2 2021, we reported revenue of $12 million for this quarter. That's comprised of the $10 million milestone payment for the DEA scheduling of SDX, as well as the continuing service fee revenue of about $2 million, which we recorded for the period. That led us to have net income of $6.2 million or $0.18 per basic share and that's really a great thing to see us continuing to have a consistency in revenue and allowing us to bring in and have this income. Operating income for the quarter, it's good to note that it included almost $1 million from the forgiveness of the PPP loan that did take place officially during Q2. And then one other thing I'd like to point out is when you see our 10-Q, you'll notice that we do have a net loss attributable to common stockholders. And it's driven by a noncash deemed dividend. You may have seen this in our prior results. And I mentioned it just to say this is not a cash dividend that was given to anyone rather it's really just the method of accounting for the warrant exercise inducement transaction. So just trying to call it out to make sure there's no confusion there. This is a noncash item. Operating income, of course, during the period, it was driven by the increase in revenue as well as sort of a modest increase in operating expense. And as Travis mentioned, you'll notice R&D expenses did increase compared to the prior year quarter, and that really was related to the initiation of these trials connected to the SDX products. Our balance sheet also continues to be very strong. And as of June 31st, we're pleased to report that we had $132 million in cash…

Yes. Thanks, LaDuane. And certainly, some questions that we have seen may highlight those as well, but I appreciate the update. So now looking forward to what we plan to do here at KemPharm. Of course, we're going to be watching intently the AZSTARYS rollout. Corium certainly in the driver seat here. They do provide us updates and we will pass along anything they allow us to say. We do know that there have been just a handful of scripts, but that is mainly an issue related to this early, early launch days. The fact that it's not a national launch too, you should be aware means that the tracking of these scripts is somewhat spotty. It's difficult for some of these places, like IQVIA and Symphony, to record through their databases sales when it's not a national rollout. We continue to provide support for AZSTARYS with the consulting agreement that we have related to manufacturing, scientific and regulatory affairs. That will continue at least through the agreement itself, which ends in March of next year. And certainly, as I mentioned, we expect royalties and sales milestones in 2022 and beyond. We talked briefly about the opportunity with SDX. We're going to have data here. We're going to be able to provide some insights into what happens with this molecule at higher doses. And how could this benefit various patient populations and disease states. And so we can't wait to actually provide that future direction for that product. LaDuane just updated the improved financial position. This is really to put us in a great place to execute on a strategic vision. It's the first time in our existence not only are we looking at our internal pipeline, what we have and haven't even announced, we're also looking external to KemPharm. And so we hope to provide an overview of this in the near future. But at this point, we know that we're in a great place. We have a great balance sheet. We have all the tools in the toolbox to be able to execute should the need arise, the desire arise and should the strategy be able to grow KemPharm in a meaningful way in the future. And so that is our goal right now is to finalize that plan, that strategic vision, to finalize the SDX development plan and then, of course, present those to the shareholders, investors of KemPharm. I really look forward to that day when we'll be able to highlight all that hard work we've done over the last months. So with that, I'm actually going to start some of the questions, and LaDuane is going to be kind of our emcee for this session. Some of them are passed along of course through analysts and as well as many of you individual shareholders.

Thank you, Travis, and thank you, everyone that submitted a question. We received quite a few and what we've done is tried to group them into questions that really encompass the nature of everything that was sent in. So we appreciate it. So we'll get started. The first question is from Jonathan Aschoff, the analyst from ROTH. He asks, can you please help me understand ballpark pricing per prescription of AZSTARYS and how long a prescription lasts? And further, how does that compare to other branded drugs in the space, notably Vyvanse?

So with this particular question, I can actually say the WAC price for AZSTARYS has been set at $12.90 per capsule, 30-day supply being $387. That's a 30-day script. So this is still a C2 product, still controlled substance and it's limited to a 30-day supply for AZSTARYS. Now comparability, I can't say 100%. I know Vyvanse is somewhere right now is a WAC price in the $12 range. This is a slight premium above that but certainly in line with other branded products like Vyvanse, as well as from what I can see for WAC prices for branded Concerta and Focalin XR are in the low teens, depending on what prices you're looking at. So certainly, in line with everything from the branded perspective.

The next question from John as well. Has there been a material acceleration in the development of KP879, given the favorable DEA scheduling at the C4?

I mean we always -- KemPharm go as fast as we can on everything. So in this particular instance, yes, there has been. It's not KP879 per se. It maybe. What we're doing is the SDX study that I've already described, and we're doing it as quickly as possible. It says by year-end, we hope that's actually not by year-end, it's much faster. I can't guarantee any of it as you heard me say before, but we are moving that program or programs ahead as quickly as possible.

Well, it seems to have that the C4 really opens our mind to other possibilities with the SDX-based candidate. So that's also part of that evaluation, I would assume?

It is.

And the last question from John. Are you actively engaged in a potential product acquisition? And if so, can you shed any light on progress there?

As part of our assessment of the strategy, yes, we are looking at potentially acquiring other products. Are we actively engaged in looking at other products? Only at a cursory level. At this point, the strategy hasn't been fully formed. We need to know what we're going to develop internally, what resources need to be applied there. I'd say that we're not far from making that decision. So good question and very timely.

The next question comes from an investor. It says, can KemPharm update investors about the AZSTARYS launch, PBM approvals, the competition and the milestones associated with AZSTARYS sales?

I think that's been addressed already to the best of our ability. We can't disclose the details of the license agreement as far as the economics. We've said the royalties are separate from the sales based milestones. I think that's very important for everybody to understand. Royalties are on top of. That goes from the high single digits to the mid-20s -- on the higher end of the mid-20s. And then as well, the sales milestones, we did improve and add some early ones, basically taking the other 20 plus million that was due with the label and moving some of that out and then increasing the size of both early and late stage milestones.

There was actually a related question, which seem to indicate some infusion between -- when we describe the license amendment, we recognized that there was up to $590 million worth of sales-related milestones. And some folks have been confused as that represent a cap on royalties. And I would just say, no, it's not. Royalties are separate and distinct from sales related milestones. And so to be clear, we received royalties on net sales. That means for the fewer prescriptions that have already been gone through the system, we've already earned certain amount of money, which we can't tell you yet. We don't know. But we technically have earned a royalty on the first dollar, and that's independent of the sales milestone. As sales accumulate then toward each of the sales thresholds, you would receive and be earning those milestones independently. So hopefully, that clears that question for folks.

So there is one bucket, the sales milestone that has a cap in discrete dollar amounts when you reach certain milestones. And then there's another bucket for royalties that's infinite. We can keep just pouring in the money on that side. So hopefully, that clears everything up.

The next quote question, have there been any APADAZ sales or milestones received? And I can take this question, Travis. We did report out that KVK indicated to us that they had entered into the pilot program initially launched in Alabama, which was really a small subset or a group of physicians in that area. And now they've reported that they want to expand that. So I think we're not able to provide you with the exact sales.but I will say there has been products sold into that pilot program. But of its design, it's small. And so we have not yet attained any of the sales milestones under that agreement. However, I believe it's promising that KVK is glad to or preparing to expand that program into other regions of the US. So we'll continue to track that. But by its nature, a pilot probably wasn't going to generate a lot to start with. The next question is, since KemPharm is financially strong, can you discuss the need for a warrant exchange, an ATM, a shelf offering? And would these vehicles drive further dilution? I guess that's another one for me, Travis. We've tried to address this in the presentation a few minutes in my comments. You're right in the sense that when is -- we do have a strong balance sheet, and we did a lot to get us to that point. And so why do these things? I would just reiterate what I've already said, which is we needed to have the tools and the credibility so that now we have greater operating flexibility and maybe even, more importantly, greater strategic flexibility. An ATM or shelf offering, as we said, technically speaking, of course, it is further dilution. But what I'd rather think of it as it enables further value creation. And if we utilize those tools from that express purpose to create value then the issuance of shares is actually expanding the potential of KemPharm and the valuation. So I think that that's what we have in mind as many companies do. So I hope all of our answers together on this help you understand better. But that's -- I guess, Travis, do you have anything to add to that?

Well, I think I'd just balance that is on the other side. If the need does not present itself, we may still create value and build upon the strategy. But if the need does not present itself, there will be no utilization of the shelf or the ATM. There is -- as the statement says, there's a healthy balance sheet. There's no need for it at this given moment. You would only do so in those instances in which the companies made the decision that there could be far more value garnered out of, say, the acquisition or a license of an external asset or a company. And in that case, you would want to keep your cash reserves, if possible, in order to be able to execute on whatever you needed to at that point, further development, additional technology investment, again, all to raise ultimately stock price and market cap for the company.

So the next question is another one for me, I'm afraid. How many outstanding warrants are there now? So I like the easy questions. And of course, I did address this in the presentation. About 4.6 million warrants remain outstanding. Those are different price points as we've described. Most of those are at the 6.50 range, about 1.5 million or at 16.50. So you have the full details on that. The next question is, have the employee stock options been priced? If not, what is the delay? And Travis, I believe they're referring to where, during the annual meeting, stockholders approved an amendment to the employee incentive plan. So I guess, would you like to take that one?

Yes, I'll start, and you can fill in the rest of the details. I do want to thank everyone for supporting that effort to get that plan approved. Once that plan was approved, though, there is a process in which the Board and the compensation committee and management have to work together in order to use an analysis that we detailed extensively in the proxy as to make sure that we are again, using fair practice and assessing how much of those should be disbursed at what value, of course, in what point of time. None of that comes quickly. That's just the process you have to go through. And when that process is complete, the individuals who receive those options to purchase shares at whatever price that day that they were issued, correct, LaDuane, or did I kind of ratted that together a little bit?

No, well said. And I would just say 2021 is a little bit of an anomaly, because we typically have an annual process that we go through, just what Travis described. And if you go back, you'll see -- that you'll see primarily Form 4s or option grants are filed in the February, March time frame, commensurate with that annual process. This year was a little different because we did need to amend the plan and sort of, again, all related to our balance sheet restructuring, try to sort of rightsize that plan. It is a 10 year plan. And so as we look at that analysis, this isn't go issue them all at one time rather it's a methodical 10 year plan designed to create long term incentives for employees. And so that's all part of the analysis that Travis described. The next question is for you, Travis. Can you discuss the status of the current pipeline, and they specifically note KP484 and KP879. What is next? And does KemPharm intends to in-license other assets?

Sure. I think we've addressed all that, but I think it's a nice way to kind of wrap it all up with a bow. The answer to all of that is yes. We are looking at external opportunities. And as our strategy will evolve over the next few weeks to months, we'll be able to detail that more. It's not just external opportunities, it's also internal opportunities. So we want to prioritize what we do with SDX primarily. That is our highest value asset. It's the most advanced in the clinic. It's already -- 70% have an improved product. So we've done a lot of work already. So that makes sense to put in a very calculated investment. But let's do so knowing that our next step could be the most valuable step for the company, even beyond what AZSTARYS has shown. We'll be looking at our own preclinical library of compounds. Where do they fit with that new indication with what we want to move SDX forward with? And how do they fit with an external opportunity if we're fortunate enough to find something that makes sense? So all of that is right now being contemplated, built, worked on in order to be able to create, again, a KemPharm that doesn't exist today, didn't exist five years ago, didn't exist when I started, which is really the ability to become a multibillion dollar company developing across a range of products and perhaps, one day, commercializing those.

The next question is for me, it sounds like. Is the current burn rate a good metric or will it increase as you develop additional products? And so I did addressed this too. Our current burn rate remains at this $1 million to $1.5 million per quarter cash burn rate. And I do continue to see that. But as we go through the process that Travis has described and we make those final decisions and decide which products to bring forward or whatever that may be, as Travis mentioned, you can expect that the burn rate would increase. And if you go back to other years, for example, 2018 where you saw R&D spending at a much different level, well, that's because we were actively working through the development of KP415, now AZSTARYS. So it will increase. But at this point point, I can't predict when that is, because it's dependent upon all the good work that Travis just described. And then actually, the last question for today's call, Travis, someone asks the stock valuations moved since the approval and DEA scheduling, why do you think it has not improved?

I think there are several factors. Number one, I didn't turn my dial up for the stock price right away. Sorry about that. That's a horrible joke. Again, we have no control sometimes. These are just macro issues that occur. I think from where we sit, there was probably some concern over some of these financial tools and maybe a misunderstanding or miscommunication, whatever it may be. As well as just when AZSTARYS going to be launched? We couldn't say anything until it was actually launched, and that was because of the confidentiality agreement we have with Corium. But looking at our peer group, so these are other companies in the similar stages, KemPharm working on molecules that similar to us, products that are, say, just commercialized or next will be commercialized shortly. Our entire peer group since about mid-June is also down significantly. So I believe there's some sort of macro force here that is at play, and money is just moving out of this particular sector. So while it's unfortunate to see a short term stock change for no apparent reason, it is not -- everybody in that space has seen the same thing without any negative news and certainly nothing of concern for the organization. Again, we are focused on long term value. We're focused on what we can do to change the fortunes. We'd be fortunate to be here. There are fortunes today and making it even more for tomorrow. So that will be our goal, has been our goal since the creation of the company and when we went public. So I think that covers it. LaDuane, do you have anything else to add?

No, that's everything I was looking through and really, I think we've covered most of them. So thank you.

Yes. No, we appreciate the great questions. This format may change over time as we may receive additional analyst coverage. And so we would formalize it a little more, give everybody there an opportunity to speak and maybe take a couple of questions that were outside of that realm from our shareholders. But we greatly appreciate all the interest, all the continued support and we look forward to providing more updates as soon as we can. Thanks, everyone.

This concludes today's conference call. Thank you for participating, and you may now disconnect.