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 change 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 website under the Investor Relations section. Speaking on today's call will be Travis Mickle, KemPharm's President and Chief Executive Officer; and LaDuane Clifton, Chief Financial Officer. 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 are already aware of most of these, but I'd like to run through them 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 updates, 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 U.S. 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 that we received notice that the DEA took a recommendation from the FDA to schedule SDX, or serdexmethylphenidate, as a Schedule IV controlled substance. All methylphenidate products right now are Schedule II. This is the only methylphenidate-containing product that is Schedule IV. This is remarkably beneficial. It means it has a lower potential for abuse when compared to other d-methylphenidate products and, in fact, lower than some Schedule III products, 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 and we also have net income. He'll talk about that shortly. Of course, that was the combination of the warrant transaction, which he'll explain in more detail, as well as the regulatory milestones received in the second quarter. And then we are excited to think about the future, especially beyond AZSTARYS. It's great to have sales rolling in and royalty potential, but at the same time, SDX holds many different avenues for us. And we do expect to have some clinical data prior to year-end with SDX. That is something that I will detail more in just a moment. KVK Tech did pass along that they're preparing to expand the SureMed collaboration for APADAZ. I know that's not a phrase you hear very often from our mouth anymore, but certainly, that's still ongoing. They're expanding that collaboration known as Perspectives and Care into additional regions. So we'll be excited to hear about any updates that they pass along to us. Moving on: as I mentioned, the U.S. commercial launch of AZSTARYS is well underway. We are excited about the product, as is Corium. If you have a chance, please visit the website. You can learn more about the product and some of the promotional and sales-based tactics that Corium is undertaking for the product, primarily all around the label differentiation related to AZSTARYS. So if you remember or recall, those various label elements include how the product is administered — it could be taken with or without food, it can be opened up and sprinkled on applesauce or in water. There were no changes in height and weight over time that were clinically meaningful. The pharmacokinetics of the product is very smooth. We have an early peak early in the morning and then it tends to gradually decrease throughout the day, and the efficacy data show that you have this very early onset through a long duration through the entirety of the day. All of that, combined with the fact that this product is 70% SDX, which is also, as I mentioned, a Schedule IV controlled substance, makes this really a completely different type of product compared to other methylphenidate products available today. Corium provided us some commercialization updates that we're going to pass along. I will caution everyone this is very early days. In those particular instances, it will be a slow road. We have to be patient to see how these types of products will launch. It's initially going to be a focused launch in just a few states with select prescribers. And that's really due to a number of different factors, mainly because you don't have payer coverage in many cases. Large payers will often block reimbursement initially for about a six-month period of time as seen by industry-wide standards for any new product. It didn't matter if it was AZSTARYS or something for blood pressure or oncology — it's going to see that initial NDC block until a payer has a chance to review it and discuss with the company any potential contracts that need to be placed in front of it. We have heard from Corium that some payers have indicated some initial receptivity to AZSTARYS, given its differentiation. Many times, when you hear that feedback, payers are worried that they're going to have to actually pay a large amount and would like to discuss contracting for the product. Corium also told us that when payer access opens up and as the current COVID environment changes and they start to get some initial velocity, that launch will expand. It will become a national launch with more sales personnel. I think this is a prudent strategy: don't oversell it or have physicians write a bunch of prescriptions that don't get filled because they get stopped at the payer side. They certainly know exactly what they're doing, I think they have all the resources in place, and we are excited to see them take this forward. As you may be aware, based on that label, we did update our internal forecast. And this really was the basis for the amendment that we did to the license agreement with COMAV, which is an affiliate of GPC, back in April. Moving on briefly to the serdexmethylphenidate (SDX) opportunity: there are a number of different features here, and I've spoken at length about the Schedule IV scheduling, but also it's the unique profile of the prodrug that provides us a real opportunity. You have this lower abuse potential as well as this favorable pharmacokinetic profile, and the fact that you can't just swap it in for other methylphenidates gives us a unique chance to really capitalize on the molecule. We recently initiated a trial with SDX. We did so under the KP879 IND. I'm not calling this product 879 for a very good reason: this study itself was designed to tell us a lot more about SDX than just what it could do for stimulant use disorder. So we're exploring the pharmacokinetics at higher doses as well as safety and some exploratory effects, such as effects related to abuse potential and/or wakefulness side effects that may come with methylphenidate products. Some of the reason why we haven't really announced the initiation of the study — primarily because I can't tell you exactly when it’s going to start; I've heard timelines ranging widely — is that enrollment is difficult. We're looking at people with a history of significant stimulant abuse, almost to the point of addiction, and these individuals can be challenging to enroll and retain in studies. We'll use the clinical data from the study to decide what the future is for the program. Is it going to be primarily in stimulant use disorder? Is it going to be used for idiopathic hypersomnia, the product 1077 that we announced last year as a potential, or other indications? There are a number of different indications. We want to pick the right one that has the right market conditions as well as the best opportunity for that product to do well, and one that won't cannibalize itself. Now that I have run through that, I'm going to turn it over to LaDuane to provide you with a financial update. LaDuane?

Thank you, Travis, and good afternoon. For Q2 2021, we reported revenue of $12 million for the quarter. That's comprised of the $10 million milestone payment for the DEA scheduling of SDX, as well as continuing service fee revenue of about $2 million, which we recorded for the period. That led to net income of $6.2 million, or $0.18 per basic share, and that's a great thing to see — continuing consistency in revenue and being able to report income. Operating income for the quarter included almost $1 million from the forgiveness of the PPP loan that was officially recognized during Q2. One other item I'd like to point out: 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. I mention 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 I want to call it out to make sure there's no confusion — this is a noncash item. Operating income during the period was driven by the increase in revenue as well as a modest increase in operating expenses. As Travis mentioned, you'll notice R&D expenses did increase compared to the prior year quarter, and that was related to the initiation of the trials connected to the SDX products. Our balance sheet also continues to be very strong. As of June 30th, we're pleased to report that we had $132 million in cash and equivalents — that's an increase of $56 million compared to the March 31st quarter end. We received the $20 million in cash milestones, both from the approval and from the DEA scheduling; they were both received during Q2. And then, of course, we also brought in proceeds of about $40 million from the warrant exercises. The warrant exercise inducement transaction we did in June brought in gross proceeds of approximately $39 million. That was essentially an exercise of warrants that were already outstanding, converting those warrants into cash on the balance sheet. We did issue a small amount of inducement warrants, but those have an exercise price of $16.50, which indicates what we believe the market could be headed toward. As of June 30th, a lot of folks have been curious about exactly how many common shares are outstanding, and so we're right at 34 million, almost 35 million, common shares outstanding, and we have 46.5 million shares fully diluted. That includes about 4.6 million warrants outstanding. So many folks have been curious about how many warrants remain outstanding. KemPharm certainly has a solid financial position where we stand right now. As you know, and many of you have followed, we have completely restructured and recapitalized our balance sheet. This not only provides for operating requirements, but it also allows us to look at how to allocate resources towards our internal development opportunities, and we can also look at other potential external investments and fees. For now, our cash burn rate remains at $1 million to $1.5 million per quarter. Obviously, as we make strategic decisions around development opportunities, that will change as we get development plans in place. Another item we received a number of questions about has been around the shelf registration that we completed just after the end of the quarter, but still within the period of interest. It's important to note that we actually had an S-3 previously, so this was really an increase in the size of the S-3 to be in line with what our new balance sheet looks like. Keeping and maintaining a shelf registration on Form S-3 is a housekeeping step. I would say there are no immediate plans to use it, but it's available if strategically appropriate in the future. Similarly, the ATM agreement we entered into is a tool reserved for opportunistic use only. This is a tool many companies use and we've had an ATM in place in the past. So really nothing new here in terms of strategy — these are tools in the toolbox so that we can be nimble if the right deal comes along or the right opportunity arises. Taken together, our goal through all of these steps, including the restructuring steps, has been to provide an extended cash runway as well as greater operating and strategic flexibility. If you're in the process of pursuing opportunities, you need to sit at the table and be a credible party in terms of your ability to close a deal. Timing matters; sometimes having a strong balance sheet or these tools in place facilitates the timing so that when the right deal comes along, you're ready to act. Hopefully that explains and we'll entertain more of your questions, but that's the intent behind many of the moves we've made over the last several months. I'll turn it back to you, Travis.

Yes. Thanks, LaDuane. Certainly, some questions that we have seen may highlight those as well, but I appreciate the update. Looking forward, we will be watching intently the AZSTARYS rollout. Corium is in the driver's seat here; they 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 these very early launch days. The fact that it's not a national launch also means that tracking of these scripts is somewhat spotty; it's difficult for databases like IQVIA and Symphony to record sales when it's not a national rollout. We continue to provide support for AZSTARYS with the consulting agreement we have related to manufacturing, scientific and regulatory affairs. That support will continue at least through the agreement itself, which ends in March of next year. As I mentioned, we expect royalties and sales milestones in 2022 and beyond. We discussed the opportunity with SDX: we're going to have data here and be able to provide some insights into what happens with this molecule at higher doses and how it could benefit various patient populations and disease states. We can't wait to provide that future direction for that product. LaDuane updated the improved financial position. This puts us in a great place to execute on a strategic vision. It's the first time in our existence that we are not only looking at our internal pipeline that we have — some of which we haven't announced — but we are also looking externally. We hope to provide an overview of that in the near future. At this point we know that we are in a great place: great balance sheet, all the tools in the toolbox to execute should the need or opportunity arise. Our goal right now is to finalize that strategic vision, finalize the SDX development plan and then present those to KemPharm's shareholders and investors. I really look forward to the day when we'll be able to highlight all the hard work we've done over the last months. With that, I'm actually going to start some of the questions, and LaDuane will be our emcee for this session. Some of them are passed along through analysts and many of you individual shareholders.

Thank you, Travis, and thank you to everyone who submitted questions. We received quite a few and we've tried to group them into questions that encompass the nature of everything that was sent in. We appreciate it. So we'll get started. The first question is from Jonathan Aschoff, an 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?

For this particular question, I can say the WAC price for AZSTARYS has been set at $12.90 per capsule, with a 30-day supply being $387. That's a 30-day script. AZSTARYS is still a Schedule II product and it's limited to a 30-day supply. In terms of comparability, I can't say 100% for payer net prices, but Vyvanse's WAC price is somewhere in the $12 range. AZSTARYS is a slight premium above that but certainly in line with other branded products like Vyvanse. WAC prices for branded Concerta and Focalin XR are also in the low teens, depending on the specific formulations and sources. So AZSTARYS is generally in line with other branded products from a WAC perspective.

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

KemPharm goes as fast as we can on everything. In this particular instance, yes, there has been acceleration. It's not KP879 per se; what we're doing is the SDX study that I've already described, and we're moving it as quickly as possible. We hope to have data prior to year-end, and we are working aggressively to meet that timing, though I can't guarantee specific dates because of the enrollment challenges I mentioned earlier.

It seems that the Schedule IV designation really opens our mind to other possibilities with the SDX-based candidates. That's also part of our evaluation, I would assume?

It is.

The last question from John: Are you actively engaged in a potential product acquisition? If so, can you shed any light on progress there?

As part of our assessment of strategy, yes, we are looking at potentially acquiring other products. Are we actively engaged at a deep level? Only at a cursory level right now. The strategy hasn't been fully formed: we need to decide what we're going to develop internally and what resources need to be applied. We're not far from making that decision, so that's a timely question.

The next question comes from an investor: 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 specific economics. We've said the royalties are separate from the sales-based milestones. Royalties on net sales go from the high single digits up to the mid-20s on the higher end. The sales milestones are separate. We did improve and add some early milestones as part of the amendment, moving some payments and increasing the size of early and late-stage milestones.

There was a related question indicating some confusion about the license amendment. We recognized up to $590 million worth of sales-related milestones. Some folks asked whether that represents a cap on royalties. To be clear: no, it does not. Royalties are separate and distinct from sales-related milestones. We receive royalties on net sales from the first dollar, independent of the sales milestones. As sales accumulate toward each threshold, you would receive those milestones independently. Hopefully that clears that up.

There is one bucket — the sales milestones — that has a cap in discrete dollar amounts when you reach certain milestones, and then there's another bucket for royalties that's uncapped. We can continue to earn royalty revenue indefinitely as sales continue. Hopefully that clarifies things.

The next question: have there been any APADAZ sales or milestones received? We reported that KVK indicated they had entered into a pilot program initially launched in Alabama, a small subset of physicians in that area. They reported that they want to expand that. We're not able to provide exact sales, but I will say there have been products sold into that pilot program. By design, it's small and we have not yet attained any sales milestones under that agreement. However, it is promising that KVK is preparing to expand that program into other regions of the U.S. We'll continue to track that. The next question: since KemPharm is financially strong, can you discuss the need for a warrant exchange, an ATM, a shelf offering? Would these vehicles drive further dilution? I've tried to address this in my earlier remarks. When we do have a strong balance sheet, why do these things? We wanted to have the tools and credibility to have greater operating and strategic flexibility. An ATM or shelf offering, technically, would be dilutive if used, but it's a mechanism to enable further value creation. If we utilize those tools to create value, then issuance of shares can expand the potential of KemPharm and the valuation. That's the perspective many companies take. If the need does not present itself, we may not use the shelf or the ATM. There's a healthy balance sheet and no immediate need. These tools are available should we decide they are appropriate to execute on a strategic transaction.

To balance LaDuane's point: if the need does not present itself, there will be no utilization of the shelf or the ATM. We have a healthy balance sheet and no immediate need. You would only utilize those tools if we determine they would create more value — for example, for an acquisition, licensing an external asset, or other strategic investment. In those cases, you may want to preserve cash to execute. The goal is to use the right tool at the right time to ultimately raise long-term value for the company.

The next question: how many outstanding warrants are there now? As I mentioned earlier, about 4.6 million warrants remain outstanding. They exist at different price points: most are at the $6.50 range, and about 1.5 million are at $16.50. The next question: have the employee stock options been priced? If not, what is the delay? This refers to the amendment to the employee incentive plan we had stockholders approve at our annual meeting. I'll hand that to Travis to start.

I want to thank everyone for supporting the effort to get that plan approved. Once the plan was approved, there's a process the Board and the compensation committee and management must go through to use an analysis, as detailed in the proxy, to determine how much should be granted and at what price and timing. That process takes time and follows fair practice. When the process is complete, the individuals who receive those options will get them at the exercise price on the date the awards are granted.

I'll add: 2021 was a bit anomalous because we had to amend the plan, in part related to our balance sheet restructuring and to rightsize the plan. The plan is designed to be a 10-year program to create long-term incentives for employees, and grants will be made in a methodical fashion as part of our annual process. Typically, option grants and Form 4 filings occur in the February–March time frame, commensurate with the annual process. The next question is for Travis: can you discuss the status of the current pipeline, specifically KP484 and KP879? What is next? And does KemPharm intend to in-license other assets?

Sure. The answer to all of that is yes. We are looking at external opportunities. As our strategy evolves over the next few weeks to months, we'll be able to provide more detail. It's not just external opportunities; it's internal ones as well. We will prioritize SDX — it's our highest-value asset, the most advanced in the clinic, and we've already done a lot of work on it. That makes sense to invest in it in a calculated way, but we will do so knowing the 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 and how they fit with potential indications and with SDX. We'll also consider external assets that make strategic sense. All of that is being contemplated and worked on to create a KemPharm that can become a multi-product, multibillion-dollar company developing across a range of products and, potentially, commercializing them.

The next question: is the current burn rate a good metric or will it increase as you develop additional products? Our current cash burn rate remains at about $1 million to $1.5 million per quarter, and I expect that to continue in the near term. However, as we proceed with the decisions Travis described and decide which programs to advance, the burn rate will increase. If you look back at other years, for example 2018, you saw R&D spending at a much higher level because we were actively working through development of KP415, now AZSTARYS. So yes, the burn rate will increase as development activity ramps, but timing depends on the strategic decisions we make. Actually, the last question for today's call, Travis: some have asked why the stock valuation has moved since the approval and DEA scheduling and why it has not improved. Travis, would you like to take that?

I think there are several factors. I didn't turn my dial up for the stock price right away — sorry, that's a bad joke. Seriously, we have no control over some macro forces that affect the market. There may have been some concern over the financial tools we used and perhaps some misunderstanding or miscommunication. Also, we couldn't discuss the AZSTARYS launch until it actually happened because of our confidentiality agreement with Corium. Looking at our peer group — other companies at similar stages or companies that have commercialized or are about to commercialize — the peer group since about mid-June is also down significantly. I believe there's a macro force at play and money is moving out of this sector. While it's unfortunate to see short-term stock changes without negative company-specific news, others in this space have seen the same thing. We are focused on long-term value and on what we can do to change our fortunes over time. That's our goal and has been since the company's creation.

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

Yes. No, we appreciate the great questions. This format may change over time as we receive additional analyst coverage. We may formalize it a bit more and give everyone an opportunity to speak and take a couple of questions from our shareholders. We greatly appreciate the interest and 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.