Zevra Therapeutics, Inc. Q2 FY2023 Earnings Call

Good morning, and welcome to the Zevra Therapeutics Second Quarter 2023 Corporate and Financial Results Conference Call. Please be advised that today's call is being recorded. I will now turn the call over to Nichol Ochsner, Zevra Therapeutics Vice President, Investor Relations and Corporate Communications. Thank you. You may begin.

Good morning, and thank you for joining us today to review Zevra Therapeutics progress in the second quarter of 2023, outlining our clinical progress, operational achievements, and financial results. Before we get started, let me take a moment to provide some important information. First, I encourage you to access the webcast slides and the press release both of which were released this morning and are available in the Investors Section of Zevra's website. These documents provide comprehensive insights into our results for this quarter. As we move forward with the presentation, it is important to highlight that today's discussions will include forward-looking statements. These encompass various topics, including updates on clinical development, and the regulatory journey of arimoclomol, the achievements and revenue milestones of AZSTARYS, and our French Early Access Program or EAP program. The achievement of our pipeline programs, timelines for clinical trial enrollment, initiation, completion, and data reporting from our clinical trials. However, forward-looking statements are not promises or guarantees and are inherently subject to risks, uncertainties and other significant factors that may lead to actual results differing materially from those projections made. For a comprehensive understanding of these factors, please refer to the Risk Factors section of our annual report on Form 10-K. I am pleased to welcome Zevra's management team members participating in today's call. I'm joined by Christal Mickle, our Co-Founder, Chief Development Officer and interim Chief Executive Officer. LaDuane Clifton, our Chief Financial Officer; and Josh Schafer, our Chief Commercial Officer and Executive Vice President of Business Development. Now I'd like to turn the call over to Christal Mickle.

Thank you, Nichol. Good morning, and thank you all for joining us today. The year-to-date has been a dynamic time for Zevra and the second quarter was quite productive for our team. We're very encouraged by the continued advancement of our rare disease pipeline programs towards multiple near-term clinical and regulatory milestones as well as by the progress that we are making to add in-house commercial capabilities needed to bring therapies to market directly. In addition, we continue to enhance our patient advocacy efforts, which include ongoing support of our early access programs for arimoclomol. Our balance sheet remains strong, and we believe that we have made solid progress towards our strategic mission of delivering much-needed innovative therapy to people with rare diseases. An important update today is regarding our progress with the resubmission of the NDA for arimoclomol, our product candidate for the treatment of Niemann-Pick Disease Type C or NPC. Earlier this month, we participated in a pre-submission meeting with the FDA, which focused on a preview of the complete package that we anticipate resubmitting for review. The meeting was productive and collaborative, and we gained valuable insight that we believe will help us to complete the package and give us our best chance for success. Our strategy for resubmission remains unchanged, and we are targeting resubmission by the end of this year. Regarding the development program for KP1077, our product candidate intended for the treatment of IH and narcolepsy, our Phase II trial in IH is advancing with interim data expected by the end of this quarter. We look forward to sharing that information as soon as it's available. Based on the pace of enrollment, top-line results for the Phase II trial are expected to be available during the first half of 2024. In addition, the IND opening Phase I trial in our narcolepsy program has been initiated with enrollments now underway. We ended the second quarter with a solid financial position. As of June 30, 2023, cash, cash equivalents, and investments were $87.4 million, which supports our forecasted operating cash runway into 2026. In addition, year-to-date net sales of AZSTARYS surpassed $25 million, triggering the first net sales milestone payment of $5 million, which was received after quarter-end this month. Earning the first net sales milestone for the AZSTARYS program was an important milestone, providing momentum towards the possibility of earning a second net sales milestone in 2023. Our balance sheet continues to be a source of strength for our business, especially given the prevailing conditions of the capital markets. To round out recent events, just last week, we welcomed Tom Anderson to our Board of Directors. He is a highly accomplished industry veteran with both commercial and rare disease expertise, and in addition, is another important step within the ongoing Board refreshment plan. As we welcome Tom to our Board, we also want to express our gratitude to retiring board member, Matt Plooster. Matt has been with the company since before our initial public offering in April 2015, and his efforts have played a fundamental role in shaping our growth and advancing our mission. As a co-founder of Zevra, I want to extend my personal thanks to you, Matt, for your many years of service. As we move forward, the Board continues to be unified in its support of Zevra's rare disease strategy. Now more than ever, developing and commercializing therapies for rare diseases with the patient's first approach remains our mission as we work to build a best-in-class rare disease company. Since acquiring arimoclomol, our team has been engaged in multiple interactions with the FDA as we prepare an optimized NDA data package showcasing the safety and efficacy of arimoclomol. As I've mentioned previously, earlier this month, we held a pre-submission meeting with the FDA. We were encouraged by the productive and collaborative nature of the meeting, and we received important guidance from the agency that we will incorporate in the NDA package. As a result, we have refined our expectations that we will resubmit the full NDA to the FDA by the end of this year. As you may recall, the Complete Response Letter that Orphazyme received from the FDA in June of 2021 identified three main issues. The first issue was related to the validation and reliability of the NPCCSS instrument in measuring NPC disease progression. To address this issue, we plan to provide additional evidence to support the use of the scale as the primary instrument used in the efficacy trial. For example, the FDA confirmed that it is acceptable to conduct a new analysis of the original 5-domain NPCCSS by removing the cognition domain. The FDA also encouraged the company to conduct a qualitative study to assess the validity and robustness of the swallowing domain. The second issue was related to the appropriateness of how to handle data affected by certain patient events and the method of primary endpoint analysis. To address this issue, we will be using an FDA-preferred primary analysis together with additional supportive analyses. The third issue is related to the strength of the confirmatory evidence to support a single efficacy study. To address the third issue, we plan to provide additional data from multiple new nonclinical studies as well as data from the four-year open-label extension of the Phase II/III clinical trial. The recent interaction with the FDA was constructive and provided us with additional information that we believe will further bolster the quality of our resubmission and ultimately support regulatory success for the benefit of the NPC community. In parallel with the preparation of the NDA resubmission, we are laying the groundwork for the potential commercial launch of arimoclomol in the U.S. if approved, with the goal of making this groundbreaking therapy accessible to patients as soon as possible. There are several strategic imperatives to ensure a successful arimoclomol launch. We are working to develop the NPC market through disease awareness with payers and prescribers. We believe patients can benefit from arimoclomol through key patient-finding initiatives, such as genetic testing programs, early diagnosis tools such as newborn screening, and the development of other patient identification guidelines and resources. We also work to establish arimoclomol as a foundational treatment for NPC patients by continuing to engage key opinion leaders and educating treating physicians of its clinical profile. Our goal is to decrease the time from diagnosis to treatment through market access and create a best-in-class patient and caregiver experience through education, patient services and reimbursement assistance. We are developing a tailored patient services program to support insurance approvals, patient access and positive treatment experiences. And we will seek to continue our close collaboration with key stakeholders including key opinion leaders and patient advocates to establish Zevra as a trusted and committed partner within the NPC community. Throughout this journey, we are committed to working alongside people with NPC, their families and caregivers, advocates and medical community members. We are extremely grateful for everyone who continues to participate in trials, FDA meetings and discussions and all those who are supporting the development of treatments for NPC. Now let's turn our attention to KP1077, our development program for rare sleep disorders. Beginning with idiopathic hypersomnia, or IH, we are pleased to report that our Phase II clinical trial evaluating KP1077 is progressing nicely. We are currently enrolling at over 30 sites across the U.S. The trial is a dose optimizing double-blind, placebo-controlled randomized-withdrawal study to evaluate the safety of KP1077 as well as potential efficacy endpoints such as sleepiness, brain fog and sleep inertia. Interim Phase II data that will be used to inform the design of the Phase III clinical trial are expected by the end of Q3 2023. Potential key differentiators include alignment of peak efficacy with patient need through dose optimized timing and expanded exposure range through unique pharmacokinetics. Based on the current pace of enrollment, we anticipate reporting top line data for the Phase II trial sometime during the first half of next year. In addition to the ongoing Phase II trial in IH, we expanded our KP1077 clinical program in April by opening an investigational new drug application, or IND, in narcolepsy with the goal of exploring the possibility of adding an indication for narcolepsy and thereby expanding the potential that KP1077 could address multiple sleep disorders. The IND opening study, which is a Phase I clinical trial in healthy adults, was initiated during the second quarter and enrollment has begun. As we move forward with programs in both IH and narcolepsy, we plan to evaluate the potential to initiate a Phase III trial in narcolepsy by seeking to leverage key data points from our IH program as well as leaning on the robust data generated for serdexmethylphenidate or SDX, as part of the AZSTARYS development program. As you may recall, SDX is the sole active pharmaceutical ingredient in KP1077. This strategic approach is aimed at enhancing our efficiency in developing KP1077 and bringing this potentially life-changing therapy to people in need across both indications. As you can see we have been working diligently to drive progress in our regulatory and development programs. Now I'll hand the call over to LaDuane, who will provide an update on our financial results and outlook.

Thanks, Christal, and good morning, everyone. As Christal mentioned, we are pleased to announce that AZSTARYS has reached a key milestone in the second quarter, surpassing $25 million in annual net sales for the first time. This achievement triggered a $5 million milestone payment to Zevra, which has also been received after quarter end in August 2023. This underscores the growing demand for this important therapy within the ADHD treatment landscape. We also earned royalties on net sales of $800,000 for the second quarter, and we are encouraged to see AZSTARYS continuing to attain new record weekly prescription counts. With the momentum that AZSTARYS is exhibiting through the second quarter, the trend supports the potential to earn a second net sales milestone by the end of 2023. We also anticipate that the quarterly royalties on net sales will continue to grow over the next several years. Beyond the first and second net sales milestones, there are several more we believe are attainable in the near future bringing the potential to drive increased value for our shareholders. For Q2 2023, net revenue was $8.5 million, which was driven by the $5.8 million from AZSTARYS including the net sales milestone and royalties earned in the second quarter and $2.8 million in reimbursements from the French Early Access Program for arimoclomol. We ended with a net loss for Q2 of 2023, which was $5.1 million or $0.15 per basic and diluted share, driven primarily by R&D expenses of $7.4 million and G&A expenses of $7 million offset in part by the $8.5 million in revenue and $1.5 million in other income. R&D expenses reflect the ongoing investments in the KP1077 clinical program as well as our ongoing work to prepare the arimoclomol NDA for resubmission to the FDA. G&A expenses reflect the investments we're making in our in-house commercial capabilities as well as operational support needed to underpin the need of our team as we prepare for success. As of June 30, 2023, total cash, cash equivalents, and investments were $87.4 million, a decrease of $7.9 million compared to $95.3 million as of March 31, 2023. The decrease was driven in part by increased third-party R&D costs related to the ongoing Phase II trial for KP1077, the arimoclomol program, and increased G&A expenses during the period. Of note, our available cash as of June 30, 2023, does not include the cash payment of the $5 million net sales milestone from AZSTARYS, which was received at the quarter end. The total shares of common stock outstanding as of June 30 were 33,928,005 and the fully diluted common shares outstanding were 49,315,197, which includes about 4.3 million shares issuable upon exercise of warrants. The company's current operating forecast, existing cash and cash equivalents and investments are expected to support our cash runway into 2026. Our forecast includes the ongoing reimbursements from the French Early Access Program for arimoclomol, completion of the arimoclomol NDA resubmission, commercial activities to support the launch of arimoclomol if approved, and completion of the 1077 development program for IH up to and including NDA submission. Our forecast notably does not include revenue from arimoclomol or the potential sale of the priority review voucher, which would be received upon approval of arimoclomol. It also does not include the investments needed if we determined to proceed with a Phase III trial for KP1077 in narcolepsy. Zevra remains committed to strategic financial management, focusing on a prudent approach to capital allocation to support the advancement of our pipeline programs and ensure the successful development of transformative therapies. In addition, we continue to be vigilant in our business development efforts. We continue to scan for opportunities where, in addition to our internal development programs, we may be able to add other rare disease product candidates to our pipeline. As we look forward to the second half of this year and into next year, there are multiple catalysts that have the potential to deliver value for our shareholders. We are encouraged by our progress to date.

We will take our first question from Louise Chen with Cantor.

My first question is on a potential second net sales milestone you might achieve in 2023. How big is this potential milestone? Secondly, what are the expectations heading into the interim Phase II IH readout? What caused it to be a home run scenario?

Well, thanks for your question, and I'll take the first one, Christal. The second milestone, we've not been able to disclose its magnitude or the sales threshold that we have to achieve in order to earn that milestone, but I think it's safe to say that it will be larger than the one we just earned in Q2, which was $5 million. So I'm a bit limited there, but I think that we can look forward to a continued sort of growth not only in net sales, but also in royalties and the size of the milestones.

And as far as your question regarding the interim data, as you may remember, the point of the interim data is really to inform us on the Phase III trial moving forward. And so what we're really interested in is looking at the multiple dosings that we're looking at. So if you remember, we're looking at either a once dosing in the evening prior to going to sleep or twice dosing once in the evening and before waking. So looking at that and then also looking at the doses that are being used and seeing that those doses are higher than what is being used for other stimulants that are out there and making sure that we're in the right range for us as we move forward.

And our next question comes from Oren Livnat with H.C. Wainwright.

Congrats on the AZSTARYS progress. But I wanted to focus on arimoclomol. I just want to make sure I'm hearing correctly, not misinterpreting. I think you said in terms of how to deal with missing data and certain patient events. You said you're going to move forward with the FDA preferred primary analysis. I can't remember if that's like a change from your prior expectations or ambitions. I know there were a couple of different points you had highlighted earlier when you did the deal, sort of like a rescoring without cognition, some swallowing changes versus sort of an FDA analysis, which I think originally had a different p-value. And so can you just help us understand what compromises were made? What changes, if any, were there? And I have a follow-up.

Thank you for your question. We are still following our strategy as we proceed with the resubmission. Aligning with the FDA's recommended analysis is not a new approach for us. Additionally, the validation and other aspects we mentioned will also be included in the New Drug Application. Everything is progressing as we initially planned.

Okay. And so the timing change, which is not material necessarily, but I'm just curious if that's just more calibrating after your meeting with the FDA? Or is there new stuff you've been working on, whether it's nonclinical stuff in animals or just analysis or reanalysis of the data?

So it really boils down to we had our FDA meeting very recently, and so it's a refinement of making sure that we present the data in a way that the FDA would like to see it. And so with that, there are a few additional analyses. There's refinement in the way that we're presenting our arguments and our data. So even though what we're planning to present hasn't changed, there are some nuances there that we are going to look at. And so that pushes that a little bit out from that end of Q3 that we had originally talked about.

I’d characterize this meeting as collaborative and productive, which is encouraging. In previous discussions, you mentioned that you could take a less collaborative approach to dispute resolution if necessary. Is there a change in tone regarding this. Do you feel more optimistic now after your meeting with the FDA compared to before, and do you believe you won't need to pursue that less collaborative route? Also, are you planning to request an ADCOM upfront?

To answer your first question, those options are always still available and still on the table. We were hopeful with this meeting that we had because it was a collaborative meeting, and we appreciated the tone that the FDA had. They do seem to be working with us to get this resubmission in. And then as far as your second point, what was that?

Whether you expect, I guess, upfront to request an FDA, an ADCOM meeting...

So that's an interesting question. I don't think we will as for upfront. We welcome it if it comes from the FDA, and that's still a consideration if the FDA does not ask for it that we may ask for it ourselves, but it's not something that we'll ask for immediately upon resubmission.

Okay. And if I just may look a little further down the line, assuming this all goes well. Any progress that you've made on remarkable life cycle management? I think there were some hopes to improve dosing, get some more additional IP around the project? Anything to report there?

So right now, we are focused on approval. But those are always things that we will look for as we move forward.

Our next question comes from Sumant Kulkarni with Canaccord.

I have a couple. So on the lease commitment of the arimoclomol NDA, you mentioned the productive and collaborative process with the FDA. Which portion of the three parts of the Complete Response Letter and your ongoing response would you say that the majority of your last interaction with the FDA was focused on? And then I have a follow-up.

So we presented everything because we treated this as a pre-submission meeting, but a large part of it was also focused on the confirmatory evidence that the FDA hasn't seen in the past.

Got it. And then in the last meeting with the FDA, did the agency state specifically that no additional clinical data would be required, or did the FDA make suggestions that additional clinical data may be required but left to the discussion of Zevra on whether to run those or not prior to these submission?

There was no discussion about additional clinical data being needed.

And our next question comes from Jonathan Aschoff with ROTH MKM.

I was curious, so that was just the booking for AZSTARYS revenue versus the prior quarter. I was just kind of curious if that math is correct because you said arimoclomol was $2.8 million, $5 million milestone, just leaving it at $670. Why was that kind of flat like that after the growth in the last couple of quarters?

No. So it was not flat. So I guess when I read through all the components of revenue, when you add it all together, there is the cost of revenue associated with the milestone. So to be clear, we had $800,000 in net sales royalties from AZSTARYS. So it was not flat.

Okay. So the net arimoclomol is not $2.8 million. It's a little less or it is $2.8 million, and it kind of can't be $2.8 million.

There is a cost of revenue associated with the milestone. If you remember, we pay a 10% royalty to request it. And so we had to recognize a 10% reduction based on that. That's the difference that you're thinking of.

Okay. And I was curious, in your response to the first question, you were talking about the interim IH data to inform a Phase III trial. But I was thinking, why do you even care about that, the final data is a few months away, isn't that vastly more important and informative in the Phase III than what comes at the end of this quarter?

So actually, no. The whole point of the Phase II trial was to inform the Phase III trial. It's ultimately, this prodrug is a stimulant. And so we know that there's going to be an effect. And so what we wanted to get out of this trial is really those nuances that we'll need to understand as we're preparing for the Phase III trial and preparing the protocol for the Phase III trial. So getting this interim data is going to allow us to refine that Phase III trial and move forward with FDA meetings and further preparations for those for the Phase III trial while we finish up the Phase II.

Okay. And lastly, I guess it's fair to assume maybe you can say this is your AZSTARYS milestone that they will substantially decrease as a percentage of the sales figure that triggers that. Here, it's a 20% ratio, but that should substantially decrease as we go forward. Is that at least fair to say?

I haven't made that statement. So no, I wouldn't say that.

So they might actually stay fairly in line with that 20% payout kind of ratio?

I think that would be a great outcome, as it did. I want to remind you that when we had the opportunity to renegotiate these milestones back in April of 2021, we were looking for a way to advance the milestones. Therefore, those ratios might differ from what you typically expect in a market license. The fact that the first few are in this range reflects some of the amendments we were able to agree upon during that time.

And this does conclude the Q&A portion of today's call. I would now like to turn the call back over to Christal Mickle for any additional or closing remarks.

Great. Thank you very much. We're excited about our progress in the first half of 2023 and are looking ahead to continue our momentum. As we look forward to the second half and into 2024, we're focused on the following three top priorities: First, to resubmit the arimoclomol NDA to the FDA and strengthen key functions and capabilities to support a successful launch if approved. Second, to complete the Phase II trial of idiopathic hypersomnia and prepare to advance KP1077 into a Phase III trial sometime next year. And third, to continue our work to expand our KP1077 program into narcolepsy. Corporate development also remains a priority as we actively engage in conversations to potentially acquire new pipeline assets that would be complementary to our portfolio, and that could benefit from the potential application of our prodrug technology. We're building something really special here at Zevra. We have a legacy of drug development success upon which we are expanding our capabilities by adding an innovative patient-first commercial team, which we believe has the potential to drive meaningful value for our shareholders. But not only that, we're fully committed to our mission of bringing much needed therapies to people living with rare disease. Patients, caregivers, and all of those who are supporting the rare disease communities that we serve are at the forefront of everything that we do. I want to thank our shareholders for your continuing support of our efforts. Additionally, I want to give a special thanks to our employees for their energy, enthusiasm, and relentless commitment to make Zevra's success. We're excited about the prospects, opportunities, and potential for success in front of us. Thank you for joining us today, and we look forward to speaking with you in the future.

This concludes today's Zevra Therapeutics second quarter 2023 earnings call and webcast. You may disconnect your line at this time, and have a wonderful day.