Ladies and gentlemen, thank you for standing by, and welcome to KemPharm's First Quarter 2021 Results Conference Call. At this time all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference call is being recorded. I would now like to hand the conference over to your speaker host, Jason Rando at Tiberend Strategic Advisors. Please go ahead.

Good afternoon, and thank you for joining our call today to discuss KemPharm's First 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.

Thanks, Jason, and thanks, everyone, for joining us today. As most of you know, and I'm sure all of you that joined the call are aware, the FDA approved AZSTARYS on March 2. Certainly, one of our large highlights here from the first quarter of this year. We do expect our partner, Corium, to launch that product in the second half, presumably around the start of the fiscal year, if all things go well. We also announced during this quarter a number of different highlights, including an amendment that happened after the first quarter to the license agreement, now eligible to receive up to $590 million in sales milestones and royalties on top of that, that go out to the length of the patents. We also recently announced that serdexmethylphenidate, which is the prodrug in AZSTARYS, received a Schedule IV classification. This is the only methylphenidate product that is a different schedule than Schedule II. I will actually walk through a little bit of those key differences and how they're prescribed and handled, the differences between those two classifications. Just to say it's fairly meaningful for a patient, physician and pharmacist, and we believe it provides a key differentiator for AZSTARYS as well as potentially KP484 and in our own product, KP879. LaDuane is here to discuss all the great things he's accomplished since the beginning of the year, so I won't take away much of his thunder there. Of course, the big ones being complete transformation of our financial situation, relisting on the NASDAQ, repaying all the debt and putting us in a great position to amend the agreement and be able to invest in our own future again as well as have ample capital to do what we need to do strategically and with the organization moving forward. Beyond AZSTARYS, we're actually getting very excited now about the initiation of a clinical trial in mid this year on KP879, which is our lead product for the treatment of stimulant use disorder or stimulant addiction, an extremely exciting product and a unique opportunity. We still are working under the expanded services agreement with Corium. We continue to watch with our partner KVK Tech and the launch of APADAZ, and as soon as we're able, we'll give more details on how that is progressing.

Thank you, Travis. Certainly, Q1 was a culmination of a lot of work that's gone into our financial restructuring, and I'm very thankful to say that we've come out on the other side very strong as a result. A series of transactions, obviously, we've discussed this with you before, so I won't go into great detail. But of course, we regained our listing on the NASDAQ Capital Market. We were able to eliminate all of the Company's debt. We added new capital to propel growth and really create flexibility that we did not have before. It's important to note here that incremental capital continues to flow in as the warrants that were generated from the January transactions are exercised. We don't really predict when that comes in, but those warrants have a five-year life and have a strike price in the range from $6.36 up to $8.125 per share. They are exercised from time to time as the holders decide to exercise, and that is an incremental source of capital, which is already included in the fully diluted share counts. Yes, of course. And thank you to everyone who've sent in questions. We hope you find this format helpful. Okay. So the first question: how could KP879 ever fail to receive a Schedule IV DEA scheduling, if approved?

Yes. We looked at this one. I don't imagine there's any mechanism in which it wouldn't keep the designation it already has. It is a pure SDX-contained product, which has already been determined to be Schedule IV. That all being said, I think we all recognize there's significant risk in any regulatory body, FDA and DEA included. So I think there is a very high probability, but I can't say there's absolute certainty. At the same time, I think it's very, very unlikely that it would be anything different.

Okay, great. The next question we received is related to the commercialization of AZSTARYS. Can you give us an example of the sales pitch that might be used to detail AZSTARYS while counter-detailing close competitors?

Well, of course, Corium is the marketing partner, and we are not really allowed to say much about what they're doing. They do pass along things that they give us permission to pass along to our shareholders and investors. At the same time, we've touched on all the highlights, and those are the highlights that are differentiated above the other products that are out there. I think the Schedule IV designation is a big differentiation. It's obvious we have the height and weight considerations, the administration, and the efficacy. So you have all those different advantages. That being said, we didn't do head-to-head comparative trials, so the counter-detailing portion of that—physicians will just have to know, and they will learn through their clinical experience, how this product is different than the other products.

The next few questions we received were related to clinical and regulatory timelines for both KP879 and for KP484. We've already touched on KP879; maybe we could speak a little bit to KP484?

Yes. KP484 was licensed under the agreement to GPC. It is entirely up to them whether or not and what the timelines would look like for the development of that product. We have provided our input on what studies would be needed and so forth that you would expect. At the same time, they're vigorously working on the launch of AZSTARYS. They're also working now on adding a potential preschool indication onto the AZSTARYS label. We think there's a lot more value right now to pushing them to help with that process. As soon as we hear from them and as soon as they make the decision, we will pass along any updates on KP484.

The next question is related to the treatment of stimulant use disorder. One investor provided a comparison of treatment options and noted that there are a number of treatment options for opioid abuse but were not able to find similar options for stimulant abuse. The question is how we view that. Are there, in fact, any other competitors or products that can be used, whether indicated or otherwise? Related to that, could we speak to the potential to use KP879 outside of just treating stimulant use disorder?

Well, the question about whether anything is available is a good question and gets to why we chose stimulant use disorder. There is right now nothing approved specifically for stimulant use disorder. Everything today is more about helping with some of the symptoms and not really treating the disease itself. You don't have the direct pharmacologic options for stimulants that you have for opioids—those medications such as buprenorphine or methadone aren't applicable. Stimulant addiction is a completely different mechanism. So if you're currently giving antidepressants or other products, it would be beneficial for patients, and certainly for physicians, to have a lower scheduled, safer product that could now be available to treat stimulant use disorder, which would include addiction to methylphenidate, cocaine and other stimulants. As far as potential uses outside stimulant use disorder, there's been a lot of work done with methylphenidate in general, and this provides a unique opportunity now that this is Schedule IV to look at the properties of SDX and consider other indications. We have a number of published patent applications and issued patents looking at things like binge eating disorder, shift work disorder, and excessive daytime sleepiness associated with narcolepsy and other conditions. These were always theoretical, but certainly now they are items that we can evaluate in more detail.

Okay. The next question I'll take because it's related to our budget and operating forecast for development of our products and programs. Has the Company updated its budget or operating forecast? At what rate does the Company expect to utilize the proceeds from the recent capital transactions? You'll notice in today's presentation and in the press release that we didn't really provide a cash runway because, in a lot of ways, our current burn rate—how long does $76 million last if your burn rate is between $1 million and $1.5 million per quarter? So it seems like a strange question. The thing about it is we currently have a relatively low R&D spend rate. Something very important to us is that we take some time right now to not only look at the programs we have internally, but also consider whether there are opportunities externally. As we evaluate these opportunities, we hope to put together an updated plan for how we might deploy the capital to create long-term value for shareholders. That's a process we're always looking at, and we are carefully evaluating it together with our Board. That said, we certainly have enough cash to carry through the development and continue what we're doing with KP879. As we have updates or additions to the pipeline or decisions over the next several months, we'll continue to update you. I will say at the moment our burn rate continues to be around $1 million to $1.5 million per quarter until we make some judgments around incremental investment in R&D. Okay. The next question an investor asked was how to think about the potential cash flows from the AZSTARYS license agreement. There's some confusion around the $590 million of sales milestones—what does that mean? Whenever we speak to $590 million, these are potential milestone payments that are triggered by attaining certain regulatory or sales level milestones. There would be specific sales tiers—for example, if you attain a particular annual sales level, then you receive a milestone payment. So $590 million is the sum of all of those regulatory and sales milestone payments. The underlying sales tiers, though, go potentially higher than $590 million. That is not the peak sales; that is just the sum of those potential milestone payments. With that said, another question is whether royalties stop when you get to $590 million in sales. The answer is no. This is a royalty based on net sales, and we receive a royalty at a certain percentage on the first dollar of sales all the way to the last dollar of sales when the patents expire. If you read the details of the agreement, we receive a reduced royalty for up to two years after the expiration of the last patent. We've disclosed before that the patents run out to 2037 currently; it's possible other patents could be added that add time, but we would be receiving royalties on net sales throughout the entire life of the product up until that time. So there are two cash flows: cash flows from achieving milestone payments and cash flows that come from royalties.

All right. Well, again, I appreciate everybody's time. Hopefully you can see we're diligently working to assess everything that's going on here at KemPharm. We want to make sure that we take all the right next steps, do everything that we can possibly do to add the most value, and make sure that we're continuing to address the shareholders' needs. Just receiving word around the DEA scheduling has created a whole new set of options and opportunities. As we evaluate everything, we really appreciate your patience, and we will, as always, continue to provide meaningful and timely updates whenever possible, especially as it relates to the value creation we hope to achieve at the Company. With that, again, I would like to thank you for your time and appreciate you joining. Thanks, everyone.

Ladies and gentlemen, that does conclude the conference for today. Thank you for your participation. You may now disconnect.