Zevra Therapeutics, Inc. Q3 FY2023 Earnings Call

Good morning, everyone. Thank you for joining the Zevra Therapeutics Third Quarter 2023 Corporate Updates and Financial Results Call. Today's call is being recorded and will be made available on the company's website following the conclusion of the call. With that, I will now turn the call over to Nichol Ochsner, Vice President of Investor Relations and Corporate Communications for Zevra Therapeutics. Please go ahead.

Good morning and thank you for joining us today to review Zevra Therapeutics progress in the third quarter of 2023, outlining our clinical advances, 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 press release, which was published this morning and is available in the Investors section of the Zevra website. While we will not be using slides on today's call, an updated corporate presentation will be made available on our website later today. As we move forward, it's important to highlight that the company's discussions will include forward-looking statements. 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 the projections made. For a comprehensive understanding of these factors, please refer to the Risk Factors section in our most recent quarterly report on Form 10-Q and 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 Neil McFarlane, President and Chief Executive Officer; LaDuane Clifton, our Chief Financial Officer; Joshua Schafer, our Chief Commercial Officer and EVP of Business Development; and Christal Mickle, our Chief Development Officer. With that, I'll turn the call over to Neil.

Thank you, Nichol, and thank you all for making the time to join us today. It's truly an honor for me to have the opportunity to lead Zevra at this critical stage of our growth and to build on the company's solid foundation as we work towards achieving multiple near-term clinical and regulatory milestones along with accelerating our rare disease commercial capabilities to bring therapies to patients. What I'd like to do this morning is to provide a brief update on my transition and a few corporate updates. Then, I'll speak briefly on our key development programs and the acquisition of Acer. After that, I'll turn it over to LaDuane to provide the financial highlights and open the call for questions. Since joining last month, I've been meeting with and actively listening to our stakeholders. Consistent with what I understood before joining the company, Zevra's transformation from an organization built on pro-drug platform technology into one intensely focused on delivering promising therapeutic candidates to people living with rare diseases is well on its way. The mission of the company, with a deep focus on people living with rare diseases, is very much aligned with my own beliefs, and I've been impressed with the unwavering commitment of the team to build on the path to accelerate the future. I would like to thank Christal for her work as Interim President and CEO. She kept our programs moving forward while leading the company during the transition. Christal has now returned to her role as Chief Development Officer and will continue to advance our clinical programs. Joe Saluri also recently retired from the Board. We thank him for his dedication and service to the company's growth and success. I'd also like to take the opportunity to thank our shareholders that have remained committed to Zevra on its journey to become a leading rare disease company. I'm now pleased to report that there is stability within the Board and management team, along with the clarity to execute our plan. Let me now start with our clinical development updates. Arimoclomol is poised to be the first drug approved in the U.S. for the treatment of Niemann-Pick disease Type C, or NPC, which is a rare genetic progressive and potentially fatal neurologic disease, which currently has no approved therapy in the U.S., creating an urgent need for people who are awaiting a treatment option. To date, arimoclomol has been studied in more than 10 different clinical trials, evaluating its safety and efficacy across over 500 subjects. Since we acquired the asset in 2022, we've had productive interactions with the FDA and have been steadily working to address their feedback raised in the Complete Response Letter. We are confident that each of the deficiencies raised is being addressed in the resubmission. Specifically, additional evidence is being provided to support the use of the NPC clinical severity scale as well as the inclusion of an FDA preferred primary analysis. New data will also be included in the resubmission from multiple nonclinical studies, natural history comparisons and real-world data generated from the ongoing early access programs in the U.S. and the EU. In addition, data from the 4-year open-label extension of the Phase II/III clinical trial will be included in the submission, further demonstrating that arimoclomol may reduce the long-term progression of NPC. We remain on track for the resubmission of the arimoclomol NDA by the end of the year, and it is expected to be classified as a Class II submission, which will be subject to a 6-month review period by the FDA, placing the potential PDUFA date in mid-2024. We're also actively laying the groundwork for the commercial launch of arimoclomol in the U.S. to make this new therapy accessible to people as soon as possible. We are developing the NPC market by raising awareness of the heterogeneous presentation, which includes visceral, neurological, and psychiatric symptoms, making it difficult to identify and diagnose. As we progress towards the potential approval and launch, we will continue to focus on advancing genetic testing programs, creating early diagnosis tools, and supporting the evolution of treatment guidelines to support families and reduce the time to treatment. As a trusted and committed partner, we've worked alongside people living with NPC to elevate their voice. Their input has been instrumental in building awareness of the need for approved treatments for this debilitating condition. We continue to work together to develop patient services that will provide access and a positive treatment experience. Now I'd like to turn your attention to KP1077, our clinical candidate being developed as a treatment for idiopathic hypersomnia or IH. It is estimated that approximately 37,000 people in the United States are currently diagnosed with IH. With one FDA-approved treatment, there remains an unmet need for treatments with different mechanisms of action to address key unmet needs of excessive daytime sleepiness, sleep inertia, and cognitive dysfunction. Our development program for rare sleep disorders continues to make meaningful progress. Last month, we reported interim data on the open-label dose titration portion of the Phase II clinical trial. These results demonstrated that KP1077 is well tolerated at all dose levels and regimens. We are also encouraged by the interim results and believe the unique PK profile may be well suited to address the unmet need. As the program progresses, we are continuing enrollment at over 30 sites across the U.S. and remain on track to report top line data in the first half of 2024. These results will inform the design of the Phase III clinical trial in IH, which is expected to be initiated by the end of 2024. In addition to the progress being made on the Phase II trial, I'm pleased to share that our Phase I study under the narcolepsy IND is complete, and the data will be analyzed alongside the IH data to support the clinical development of both narcolepsy and IH programs. Moving to our proposed acquisition of Acer. Upon closing, we will acquire complementary rare disease assets that accelerate our transition into a commercial company. This is a natural fit with Zevra's mission to bring life-changing therapies to people with rare diseases. OLPRUVA, indicated for the treatment of UCDs, which are a group of rare genetic disorders that can cause harmful ammonia to build up in the blood, potentially resulting in neurocognitive impairment, brain damage and in some cases, even coma. UCDs can be both symptomatic or asymptomatic, making it difficult to identify people who have not yet received a confirmatory diagnosis. There are approximately 2,000 people in the United States of which roughly half are diagnosed and treated. The UCD market in the U.S. is estimated at approximately $400 million annually. This is an attractive opportunity for Zevra, not only to build our commercial capabilities, but it's also a good strategic fit with arimoclomol as there's a high degree of overlap between UCDs and NPC, both are genetic disorders, diagnosed by clinical geneticists and metabolic specialists, and while other specialists are involved with the ongoing treatment, such as pediatric neurologists in the case of NPC, the majority of these experts work within a concentrated number of centers of excellence. This close proximity will allow us to reach the majority of prescribers and to realize synergies and scale with an efficient customer-facing team. Acer's shareholder meeting is scheduled for tomorrow, November 8, during which time a vote to approve the deal will take place. This vote will mark a decisive moment for Acer and gives Zevra the opportunity to build on the highly complementary programs that impact the lives of people with serious rare diseases. Now I'll hand the call over to LaDuane, who will provide an update on our financial results and outlook.

Thank you, and good morning, everyone. As you can see from the update that Neil has provided, Q3 2023 has been a time of incredible progress in our quest to make therapies available to people with rare diseases. Our financial results for the quarter reflect our steady progress and continued investments in advancing our development programs and building out our commercial capabilities with a focus on patient services and advocacy. For Q3 2023, we reported revenue of $2.9 million compared to the same amount for the same quarter in the prior year. Q3 2023 revenue was comprised of $2 million in reimbursements from the French Early Access Program for arimoclomol and royalties from the AZSTARYS license of $900,000. Compared to Q3 of last year, AZSTARYS royalties have grown by $600,000. R&D expenses during the period reached $12.3 million, which was an increase compared to $5.4 million for the same quarter in the prior year. The increase is due primarily to the ongoing Phase II clinical trial for KP1077 as well as ongoing work to prepare the arimoclomol NDA for resubmission later this year. G&A expenses were $5.8 million for Q3 2023 compared to $4 million in Q3 of last year. This was consistent with our expectations and is driven by our business development activities and our ongoing investments into our commercial capabilities. For Q3 2023, net loss was $14 million or $0.40 per basic and diluted share compared to a net loss of $6.6 million or $0.19 per basic and diluted share for the same period in 2022. Total cash, cash equivalents, and securities were $83.4 million as of September 30, 2023, which was a decrease of $4 million compared to the prior quarter. The $5 million milestone payment earned under the AZSTARYS license agreement during Q2 2023 was received during Q3 and offset the use of cash during the quarter of $9 million, which was driven by the ongoing KP1077 development program, investments in our commercial capabilities, and business development activities. As of September 30, 2023, total outstanding shares were $36.2 million and fully diluted shares outstanding were 51.6 million. Our balance sheet remains strong and is expected to support our forecasted operating cash runway into 2026. It is important to note that our forecast does not include commercial revenues from arimoclomol, which would follow potential FDA approval or the sale of the Priority Review Voucher or any revenue from sales of OLPRUVA. As you can see, there are many reasons for our optimism. We are focused on executing against our plan with the goal of creating long-term value for our shareholders. We will now return the call to the operator for questions.

Our first question will come from Louise Chen with Cantor Fitzgerald. Please go ahead.

Hi, thanks for taking my questions and congratulations on all the progress this quarter. I wanted to ask you about OLPRUVA and basically how you plan to commercialize this product and how you think about peak sales potential. And then for the arimoclomol NDA, was the additional or, I guess, larger amount of data that you said would take some time to review, something that was requested by the FDA or was it something that you wanted to provide? Thank you.

Thank you, Louise. I'll ask Josh to take the OLPRUVA commercialization questions, and then I'll ask him to pass it off to Christal to discuss the NDA resubmission.

Great. Thanks, Louise. With regard to the commercialization for OLPRUVA, we're excited for the deal to close, hopefully, any day now. Upon closure, we'll take over responsibility for commercializing this, and we see the opportunity to have a more fulsome launch for the drug, really targeting the first quarter to put full resources behind the commercialization. So we anticipate and are putting in place a sales team, medical liaisons. We have a particular focus on patient advocacy and working with the patient community to bring OLPRUVA to those living with UCD as well as the prescribing community. And we're building out a full suite of patient services as well to ensure that patients have access to OLPRUVA. And we anticipate that all of that will be in place by the end of the year to really optimize the commercial opportunity for OLPRUVA. With regard to revenue projections, we really haven't yet disclosed that, and we'd like to get a couple of months of commercial activity behind us before we're ready to do that. But the market size, as you probably know, is about $400 million with several products in that market now, and we see that we would have a differentiated product that would have the opportunity to take considerable share within that market.

So, hi Louise, thanks for that question regarding the FDA and whether or not they requested specific studies or they were just studies that we conducted ourselves. So throughout this process, we have had several interactions with the FDA. The CRL had three concerns that they had, and we feel like we have sufficiently addressed those concerns. Again, all of that comes with a collaborative working relationship with the FDA. So as we decided on studies to conduct and got results for those studies, then we would meet with the FDA to discuss whether or not those were adequate. Again, most of those, it's all going to be review issues for the FDA, but we are confident that we have addressed what the FDA has access to.

Thank you.

Thank you. Our next question comes from Jonathan Aschoff with ROTH MKM. Please go ahead.

Hi guys, good morning. Thank you. What were your exact AZSTARYS royalties? And do you still expect $10 million in milestones to be earned in this quarter or actually $15 million?

LaDuane?

Yes, good morning, Jonathan, thank you for the question. The exact was I believe, $880,000, so we rounded up to $900,000. And with regard to the $10 million milestone, we are definitely on track to earn that milestone during Q4 and then that of course, that cash will be received in Q1.

And so that was one milestone, not a $5 million and a $10 million this quarter, just the $10 million?

The $5 million was earned in Q2 and then the cash was received in Q3. And so then looking ahead, the $10 million would be earned in Q4, we believe, and then received in Q1.

Okay. How about this R&D spike? What does that look like going forward?

The increase in R&D was primarily due to our ongoing Phase II trial. We will continue to progress through that, and you can anticipate a similar pattern as we move into Q4. We expect the top line data for the KP1077 Phase II trial to be available in the first half of 2024. As the clinical phase approaches completion in the early part of Q1, you may observe a slight moderation in spending. Looking ahead to the end of 2024, we plan to initiate the Phase III trial for KP1077. Consequently, towards the end of next year, you will likely see an increase in R&D expenditures as we begin the clinical phase for Phase III.

Okay. In the U.S., how would you quantify that low-hanging arimoclomol fruit, the identified patients who are eager to take something for NPC?

Hi Jonathan, this is Josh. I'd like to remind you that we have an expanded access program in the U.S. with about 70 patients currently receiving arimoclomol. Our intention is to convert these patients, who are receiving the drug for free now, to paying patients once we receive approval. We view these patients as a group that will become commercial, while also trying to reach additional patients with NPC who are not yet using arimoclomol. Additionally, as mentioned in our prepared remarks and as you may know, there is a high level of awareness of arimoclomol within the prescribing community. We have been collaborating with the patient advocacy community and thought leaders to ensure that, once arimoclomol is commercially available and approved, we can provide it to the approximately 300 to 400 patients currently being treated.

Okay. That's helpful. And so how many additional sales and marketing heads do you think you'll bring on for both OLPRUVA and arimoclomol, assuming approval in the middle of the next year, by the end of '24.

Yes. I don't think we're ready to provide a specific number yet. However, we plan to utilize the same team to commercialize both OLPRUVA and arimoclomol. Considering that both markets are highly concentrated and most patients are treated at around 40 or 50 centers of excellence across the country, we believe we can effectively reach the majority of physicians who diagnose and treat these patients with a small team focused on those centers. This team will include sales representatives, marketing professionals, account managers working with payers, and a medical team to ensure patients have adequate access.

Yes, because you had mentioned not even quantity required for arimoclomol. Do you think 30 for everything or is it still something where it's that same number, not even 20?

Yes. It's probably in that range in terms of the customer-facing team, but then we'll also have patient services and a robust hub that will provide support for those patients as they embark on their treatment journey. So I think within that range is probably a good direction.

Okay. And lastly, do you have any sense of timing for OLPRUVA label expansion? How aggressively you might go into maple syrup or anything else or are you more so looking for additional orphan acquisition?

Jonathan, this is Neil. That's a great question. As part of my listening tour, I'm really looking to understand what we need to focus on and have a clear plan to execute today. This includes our Acer program, the arimoclomol program, and 1077. Right now, I'm asking the team to evaluate the entire portfolio and determine how we can make decisions and prioritize those areas of development. So, stay tuned on that one. Give me another quarter, and let's revisit this conversation next time.

Okay, thank you.

Thank you. Our next question will come from Sumant Kulkarni with Canaccord. Please go ahead.

Good morning. Thanks for taking my question and again, nice to see all the updates. So you mentioned several interactions with the FDA, but could you specify how long ago was the last interaction?

Christal?

Yes, hi Sumant, thanks for the question. Our last interaction was the FDA meeting at the beginning of August.

Got it. And then assuming the company has both OLPRUVA and arimoclomol to commercialize next year, do you think the organization will be at capacity with selling 2 important products for some time? Or do you think the infrastructure could support additional acquired rare disease products? And along those lines, how would you characterize the landscape of available rare disease products today, especially given how markets have treated small and mid-cap biotech?

Sumant, the opportunity for us to be able to accelerate our commercial platform and capabilities by bringing the talent together with Acer and OLPRUVA and then arimoclomol, really is a platform. This is a step in the direction of us becoming a leading rare disease company. How we execute on that, I think we'll earn the right to be able to do this again and again and again. So from a standpoint of will we be at capacity, I think clearly executing on what we have to do will allow us to be able to make that decision at the time as to bring in additional assets under the umbrella. Josh, do you want to take the next one?

Yes, absolutely. And just to add on to what Neil said. We are building the commercial capability in a way that it can be scalable for that purpose. And we're building it today with the intention to execute against our OLPRUVA plans, but scalable to then add arimoclomol and potentially other rare disease products if that comes. But that's the intent. And in terms of other rare disease products in the landscape, there are a number of very attractive other opportunities out there, whether they're in late-stage clinical development or already commercializing on the market. And so we are constantly scanning the horizon for other opportunities. But our focus right now is really on building the commercial team and executing against the plans that we have in place.

Thanks for taking my questions. I think all of them are kind of touched on already, but just to build out some more. Firstly, I don't follow Acer already. Can you just help us understand what is the current state of OLPRUVA commercialization, so to speak, already in terms of existing support awareness. Obviously, you're going to dramatically resource that product early next year, but where is that at now?

Oren, I'll ask Josh to hit on that.

Yes, hey Oren. So OLPRUVA was approved in late 2022, but didn't actually make it into the market and into the channels until July of this year due to some of the financial challenges that the company was faced. And so consequently, there isn't a tremendous amount of awareness of OLPRUVA in the market today and the team at Acer is a pretty small team. They've been, I think, really effective given the limited resources that they have. But they don't have a sales force out there talking with physicians. They have a very small account team talking with payers. So we see this as a real opportunity to put appropriate resources behind it and to really drive the awareness of OLPRUVA and the benefits that it confers to our patients. And we think with that concerted effort and the combined efforts of our two companies coming together, we can really drive awareness and demand for OLPRUVA.

Okay. And I guess, bigger picture conceptually, as you sort of lay a commercial groundwork now well ahead of potential arimoclomol approval, which is a new development in the story versus a few months ago, how do you think about the potential return on investment and shareholder value creation with OLPRUVA alone versus needing arimoclomol to layer on top of that infrastructure? I guess another way to put it, do you think do you need arimoclomol in addition to OLPRUVA to really reap the rewards of this infrastructure you're going to build out? Or is OLPRUVA a big enough opportunity alone in your view and arimoclomol, essentially, I guess, so to be gravy, all gravy on top of that.

Yes. Thanks, Oren. I'm going to ask Josh to take that as one of the lead architects of the acquisition team.

Yes, and thank you for that question. One of the main reasons we found this acquisition appealing is due to the standalone potential of OLPRUVA in supporting the development of a commercial team. As I mentioned earlier, this team will be very focused and efficient. We are being careful with our resource allocation to ensure it's the right investment for this opportunity. We plan to scale it appropriately as arimoclomol and other products are introduced. The deal was structured to account for the possibility of only commercializing arimoclomol, and we believe the investment we are making will yield a suitable return, considering the deal structure we established.

All right. I want to shift to AZSTARYS. I've been following you for a long time and have put a lot of thought into it. It's interesting that this product has really gained traction, yet it doesn't seem to be the main focus of your narrative. As you look ahead with this product, which is performing well and generating significant milestones and increasing royalties, are you considering monetizing it for some non-dilutive financing and perhaps stepping back to concentrate solely on the orphan business, or do you intend to maintain an ongoing partnership with Corium?

Thanks, Oren. We're pleased with the performance and the acceleration that's happening at the AZSTARYS program, for sure, with our partners. In regard to financing strategies and what we might do moving forward, I'll pass that off to LaDuane.

Oren, we are pleased to see the progress of Corium, as Neil mentioned. We are excited to continue monitoring those trends. Our financing strategy is broader than just one part of our portfolio, and we will be evaluating all aspects to ensure we have the capital needed to support Josh’s efforts in meeting each of our catalysts. Ultimately, we aim to reach a point where we are cash flow positive as a company, and we will keep working toward that goal.

All right, and that's all I probably got for now. Thank you. Good luck.

Thank you.

Thank you. That does conclude our question-and-answer session for today. I would now like to turn the call back over to Neil McFarlane for any additional or closing remarks.

Thank you, Todd. As we look to the end of 2023 and into 2024, we're focused on three key priorities; first, to close the Acer acquisition and commercialize OLPRUVA for patients; second, to resubmit the arimoclomol NDA and make that product available; and third, to complete the Phase II trial in idiopathic hypersomnia and prepare to advance KP1077 with a differentiated profile into Phase III. Thank you all for your time today, and we look forward to speaking with you in the future.

This does conclude today's Zevra Therapeutics Third Quarter 2023 Results Conference Call. You may disconnect your line at this time and have a wonderful day.