Zevra Therapeutics, Inc. Q2 FY2022 Earnings Call

Good afternoon, and welcome to the KemPharm Second Quarter 2020 Corporate and Financial Results Conference Call. Currently, all callers have been placed in a listen-only mode and following management's prepared remarks, the call will be opened up for questions. Please be advised that today's call is being recorded. I will now turn the call over to Nichol Ochsner, KemPharm’s Vice President, Investor Relations and Corporate Communications. Thank you. Ma'am, you may begin.

Thank you. Good afternoon, and thank you for joining our call to discuss KemPharm's second quarter 2022 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 forward-looking statements except as required by law. For more 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 CEO; and LaDuane Clifton, CFO. In addition, we are very pleased to have Perry Sternberg, President and CEO of Corium Inc. on today's call to provide an update on the commercialization of AZSTARYS. Following the remarks, Travis and LaDuane will participate in a question-and-answer session. With that, it's my pleasure to introduce Travis.

Thank you, Nichol. And thank you everyone for joining us again today. We are pleased to have Perry with us on our second quarter results call today. We'll also be providing some product development updates from myself as well as the typical financial update from LaDuane, our CFO. So with that, I'm actually going to turn it over to Perry and just do a short intro here. Perry is a biotechnology and pharmaceutical industry leader with more than 25 years of commercial experience across a wide range of therapeutic areas and diverse markets. Prior to Corium, Perry served a dual role at Shire as the Head of Commercial for seven therapeutic area business units as well as the Chief Commercial Officer/Head of Neuroscience Division before the acquisition of Shire by Takeda in early 2019. I had the pleasure to know Perry for a number of years. And of course, we worked closely together as partners on AZSTARYS. So with that, Perry, I appreciate your participation and I'll let you take it from here.

Thank you, Travis, for the introduction and for inviting me to provide an update regarding Corium's commercialization of AZSTARYS. This is a very exciting and busy time for us at Corium, so I would like to start with a brief overview of Corium. I'm pleased to be able to say that over the last few years, Corium has transformed itself from being primarily a contract development and manufacturing organization into an end-to-end pharmaceutical company that develops, manufactures, and now commercializes innovative CNS products. Since late 2018, Corium has been owned by an affiliate of Gurnet Point Capital, a leading healthcare private equity organization. We have offices and a manufacturing facility in Grand Rapids, Michigan and offices in Boston, Massachusetts. We have assembled a seasoned leadership team with broad ADHD experience, including some who previously worked at Shire and helped launch and build Vyvanse into a blockbuster. We have two recently approved CNS products we are commercializing: AZSTARYS, which was approved by the FDA in March 2021 for ADHD; and ADLARITY, a transdermal patch that delivers donepezil, which was approved in March 2022 for dementia of Alzheimer's type. Our CDMO operations are based in Grand Rapids and have industry-leading transdermal development and manufacturing expertise, developing and manufacturing several consumer and FDA-approved drug products including our own product, ADLARITY. So that's the brief overview on Corium. In terms of AZSTARYS, as I mentioned, it was approved by the FDA in March 2021 for the treatment of ADHD in patients six years of age and older. It is unique when compared to all other ADHD drugs because it contains 70% serdexmethylphenidate, a novel prodrug of d-methylphenidate; and 30% of d-methylphenidate, resulting in immediate and sustained benefit throughout the day. AZSTARYS is a Schedule II controlled substance, but the 70% SDX component is Schedule IV. It is the first and only approved methylphenidate drug containing the prodrug. We have received very positive feedback from healthcare providers regarding the product profile. We have a long exclusivity runway with AZSTARYS as it has robust patent protection until at least 2037 and we believe it is eligible for regulatory exclusivity. Our launch of AZSTARYS has gone very well. We have had steady growth in prescriptions during the market introduction phase in terms of both breadth and depth of prescriptions, meaning more physicians are prescribing AZSTARYS, and those prescribing it are prescribing more of it. In addition, we have had an increasing number of pharmacies ordering AZSTARYS based on the geographies in which we have had sales representatives. We have been very strategic in our approach to launching AZSTARYS, applying what we've learned with other product launches with the initial launch in 2021 and early 2022, focusing on geographies with product coverage. We grew the field force to align with our coverage wins. We have been rewarded for our efforts. As of July of this year, we now have a national footprint with approximately 175 sales representatives, and we had our first-ever AZSTARYS national sales meeting last month. Our seasoned market access team has had significant success, with coverage of 145 million patient lives and preferred status for greater than 35 million covered lives. In addition to expanding our launch to be national, we are also increasing our commercial team's focus on the significant adult market, particularly influenced by the Vyvanse field force backed by Takeda being pulled back. Thus, we are now focused both on the pediatric and adult markets, which we will prove commercially and importantly provide benefits to the patients and caregivers we serve. To wrap my update on, we are very pleased at Corium with the success we've had in the CNS space and our transformation to an end-to-end pharmaceutical company. Our AZSTARYS launch has gone as well, if not better than planned, and we are very optimistic about the future of our business. I want to thank Travis for the opportunity to provide the update on Corium and AZSTARYS and for participating in this call and partnering with KemPharm. Travis, back to you.

Thank you, Perry, for your time and for the detailed update on AZSTARYS and its commercial launch. I'd like to add some updates on KemPharm. For those who may be new to our story, KemPharm has undergone a significant transformation from a prodrug discovery organization to a development-focused company with partners, including the recent news about AZSTARYS. Today, we're positioned with a late-stage CNS-focused rare disease product and mid-stage opportunities, alongside revenue from existing partnerships. Our transformation is ongoing, supported by a strong balance sheet that enables us to further evolve into a commercial organization. Recent highlights indicate this transformation is unfolding. One noteworthy development is our acquisition of arimoclomol, an NDA-stage asset that became available due to previous challenges related to its use in treating Niemann-Pick type C disease. We secured this asset with a capital-efficient structure, positioning us for future cash flow without diluting shareholder value. We’re looking to refile the NDA in the first quarter of next year. In addition to arimoclomol, we're advancing KP1077 for idiopathic hypersomnia, and our development program remains on track. A Phase II trial will officially begin in the second half of this year, and we anticipate topline results from a cardiovascular trial initiated last quarter soon. The recent updates on the AZSTARYS launch are promising, with increases in sales representatives and coverage, which may enhance our potential for royalties and milestones. Our cash and cash equivalents stand at approximately $114.5 million, with prospects for increased revenue through various streams. Focusing on arimoclomol, this treatment for Niemann-Pick type C addresses an ultra-rare, disabling lysosomal storage disorder. Its primary symptoms are neurological, aligning well with our expertise. Currently, there are no approved treatments in the U.S. for NPC. The financial structure of the acquisition allows for notable upside, particularly as we highlight our internal development capabilities. While we recognize the challenges faced with other products, such as APADAZ and AZSTARYS, we're determined to build a robust development organization with commercial potential. Arimoclomol also has early access programs in the U.S., France, and other parts of Europe, allowing for revenue generation prior to full approval. In France, we estimate generating approximately $12 million annually through this program. Looking ahead, arimoclomol represents an immediate chance for commercialization. The disease has a limited patient population, which simplifies establishing a commercial organization to reach them. We’re not aiming to rapidly expand like larger pharmaceutical companies; rather, we have viable established relationships through our early access programs that will be critical for our commercialization efforts. Regarding KP1077, it is designed to treat idiopathic hypersomnia, a rare sleep disorder where individuals cannot achieve restful sleep. The candidate consists of serdexmethylphenidate, with dosages intended to alleviate the main symptoms of this condition. It holds potential for fast-track, orphan drug, and breakthrough designation. To conclude, we expect significant milestones ahead, including the anticipated NDA refile for arimoclomol in Q1 2023. KP1077’s ongoing trials, including cardiovascular studies, will provide important insights. We also plan to pursue KP1077 for narcolepsy following the ih trials. With that said, I'll turn it over to LaDuane for a financial update.

Thanks, Travis, and good afternoon. We continue to have the benefit of a very strong financial position, and Q2 has proven to be the same sort of good results we believe. For the quarter, we had net revenue of $1.3 million. That's derived from Arimoclomol product sales, consulting service fees, and royalties. It's a change in revenue from what you've seen in prior quarters. As we've talked to you before, we knew that consulting service fees would be reducing as that contract came to an end. We do have a continued sort of smaller scope in that regard, but really not going to be a principal driver of revenue going forward. Included in the Q2 revenue is only one month of Arimoclomol product sales, just the month of June since the transaction closed there on May 31. So you can expect to see increasing impact from that revenue in future quarters where you'll have a full three months each quarter. When you look at the net loss for Q2, it came in at $24 million or $0.70 per share, but that did include a one-time non-cash expense related to the Arimoclomol asset acquisition. Most of that purchase price ends up being written off on a non-cash basis, and I think that's probably good for us in the future, but that's where the accounting guidance led us. If you account for that, you come up with a non-GAAP net loss of only $6.4 million or $0.19 per basic and diluted share, which I think is more relevant if you're looking at net income net loss trends. The balance sheet itself as of June 30, we remain very strong. As Travis mentioned, we closed the quarter at $114.5 million in cash, very strong. It was a decrease of about $4.6 million compared to where we were at the end of Q1. This is sort of in line with our expectations. We knew that the R&D spending would be increasing as the 1077 program is underway, and so all of the work that Travis mentioned is work that we've begun during Q2, and you see that increase there. In future quarters, you'll continue to see probably a cash burn rate in the range of $4 million to $6 million a quarter. That's very much within our operating expectations. The actual line of credit, Travis had mentioned that we brought this on really as a novel, very creative way to maintain capital flexibility. Because there is an ongoing revenue stream from the Arimoclomol acquisition, we chose to use a line of credit that can be serviced by that cash flow, allowing us to use our cash reserves in other ways. It gives us flexibility for our operating plan and all the development milestones that we intend to reach, as well as potential, if there are opportunities in business development ways, we still have the flexibility of a solid balance sheet for those purposes also. Our cash runway continues to be very strong and really goes beyond 2025 and again just really sets us apart from other companies candidly in the space where we do not have an immediate need to raise capital. To be more specific, the capital we have on the balance sheet and this runway allows us to complete those things required to hopefully get arimoclomol approved. It also allows us to do all the development work and take 1077 up to an NDA submission as well. So we are in a very good position, and I think for all of those reasons, we're very excited about the future for KemPharm. So Travis, I guess at this point we'll go ahead and turn it over and take questions.

We'll take our first question from Jonathan Aschoff with ROTH Capital Partners.

Thank you, good afternoon, guys. Could you please tell me what you think might be the riskiest part or parts of the arimoclomol refiling?

Jonathan, this is Travis. That's a very good question. We have been spending the vast majority of our time since the acquisition examining all the details, especially since the transaction occurred quite quickly. There are three main points that were highlighted in the CRL concerning the validity and strength of the primary instrument used to measure NPC, referred to as the NPCCSS. Additionally, there's the matter of how the efficacy was assessed using various statistical methods to determine any effects, which involves dealing with missing data, among other issues. Lastly, there is the need for confirmatory evidence. I don't think any of these points is independent of the others. I am confident in the solid data generated by the former Orphazyme team, and since the acquisition, we have been collaborating closely with them to gather more confirmatory evidence to address all concerns. I can't specify which aspect carries the most risk, but I do believe that persuading the agency of the NPCCSS as a validated instrument is still a challenge.

Okay. That's helpful. Could you please break down the $1.3 million among the three line items: AZSTARYS, arimoclomol, and other non-product category?

We will need to review how we present that information in the 10-Q, Jonathan. However, I can share that the French EAP revenue was around $1.4 million, which is displayed after accounting for the potential liability if approved. This includes a discount of approximately 35%. With that insight, you can piece together the rest. I hope the 10-Q will provide a bit more detail for you.

Okay. Any sense of when we might see some APADAZ revenue?

Well, I'd just remind you that we had licensed that to KVK, as you know. It is a profit share model, and we don't expect that we would receive anything until KVK has been able to get to a point of having profits. So of its nature, it is longer in time than a traditional royalty scheme. With that said, I'll say they continue to be pursuing commercialization of APADAZ. It's still in a very small sort of localized regional setting at the moment, but I don't believe it's near profitability. Therefore, I don't have a timeline for when we would see profit share.

Okay. Lastly, you said $4 million to $6 million quarterly burn cash beyond 2025. Should I read that as if you expect to be cash flow negative through 2025, or do you not really expect that with particularly help from arimoclomol and AZSTARYS?

Sure. I love the question because when I put together and take a look at the cash runway, I try to do it through a very conservative lens. I believe the early access revenue is reasonable to use as part of your operating forecast. It's hard to gauge the timelines of AZSTARYS revenue. So, when I quote that, I'm looking at sort of our cash runway plus our budgeted R&D, plus the contribution of the French revenue, and that's all I'm including. The upside to that forecast would be royalties, stronger than expected royalties from AZSTARYS, or when they reach those net sales milestones. I'm trying to paint a very realistic picture, but we also find ourselves in this place where we're generating revenue while continuing as a development company. We hope that with the approval of arimoclomol, we will truly become a commercialized entity with meaningful revenue. That explains how I derive that runway.

That helps me somewhat. Thank you very much.

This concludes the Q&A portion of today's call. I would now like to turn the call back over to Travis Mickle for any additional or closing remarks.

Thanks, again, everyone for joining today's call. I would just like to summarize a lot of what you heard here today. Certainly, we've talked about the transformation. You've heard us speak about this strategically for the company for about nine months now, moving the organization forward and thinking about where we sit today, a strong financial position. We have a partnered asset. You just heard from our partner that is moving to a full national launch. So we have the great upside there of AZSTARYS royalties and milestones. We have a late-stage asset that already generates revenue and effectively pays for itself, at least, here in the short term and could be cash flow positive. On top of that, we have a mid-stage rare disease product with KP1077. It's a remarkable story. I can't find another one out there like this, at our market cap and our price and where we are. It's just simply amazing that we sit where we are with all that opportunity. We're very excited and hope you are as well. Again, I appreciate the time. Thanks everyone.

Ladies and gentlemen, this concludes today's KemPharm Second Quarter 2022 Earnings Call and Webcast. You may disconnect your line at this time, and have a wonderful day.