Zevra Therapeutics, Inc. Q4 FY2023 Earnings Call

Good afternoon, everyone. Thank you for joining the Zevra Therapeutics' Q4 2023 Corporate Updates and Financial Results Call. Today's call is being recorded. It 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.

Good afternoon, and thank you for joining us today to review Zevra Therapeutics' progress in the fourth quarter and full year 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. I encourage you to access the news release which was just published and is available in the Investor Release section of Zevra's website. As we proceed with this call, it's important to highlight that today's discussion 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 cause actual results to differ materially from the projections made. Please refer to the Risk Factors section in our most recent quarterly reports on Form 10-Q and our other filings with the SEC and annual report on Form 10-K. I'm 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; Christal Mickle, our Chief Development Officer; and Adrian Quartel, our Chief Medical Officer. Now I'll turn the call over to Neil.

Thank you, Nichol. And thank you all for making the time to join us today. During the fourth quarter and into 2024, we made solid progress transforming Zevra into a commercial stage company. On our last call, we announced that we were focused on three key priorities: First, to close the Acer acquisition and deliver value to patients by commercializing OLPRUVA. Second, to resubmit the arimoclomol NDA. Third, to complete the Phase II trial in idiopathic hypersomnia and prepare to advance KP1077 into Phase III. I'm happy to report that we executed on all of these objectives, and I would like to take the opportunity to recognize the extraordinary effort from our entire team to deliver for people living with rare diseases. Before discussing our results, it's important to note that our financial statements for fiscal year 2022, including all interim periods and the interim periods of 2023, will be restated due to a change in our warrant accounting. LaDuane will provide more details later on the call, but we believe the restatements will have no impact on the company's cash or ability to execute on our strategic priorities. Turning to the fourth quarter corporate highlights, let me start with the completion of the Acer acquisition, which propelled us into becoming a commercial stage company, diversifying our revenue potential and providing scale. The acquisition was a natural fit with Zevra's mission, bolstering the talent on our team and bringing complementary rare disease assets, including commercially available OLPRUVA. OLPRUVA is indicated for the treatment of certain urea cycle disorders, UCDs, which are a group of rare genetic disorders that can cause harmful levels of ammonia to build up in the blood, potentially resulting in new kinds of impairments, brain damage, and in some cases, coma or death. We estimate that there are approximately 2,000 people in the U.S. with UCDs, of which roughly half have been diagnosed and treated. The UCD market in the U.S. is estimated at approximately $350 million annually. Despite the available therapies, unmet needs for people living with UCD persist. We believe that OLPRUVA is well-suited to address these needs as it provides personalized dosage for each patient's requirements, it's portable and easy for patients to take. And most importantly, it is powder, as it was formulated to overcome the challenging taste and smell that is associated with other formulations of sodium phenylbutyrate. Our commercial launch strategy is comprised of two major components. First, establishing a customer-facing team; and second, building awareness. Since the completion of the Acer acquisition in mid-November, we have made significant progress towards executing on these priorities, ensuring that people who suffer from UCDs have access to and are aware of the benefits of OLPRUVA. As of the end of January, we have a customer-facing team with decades of rare disease experience to support the launch of OLPRUVA. This team was built to be targeted and able to reach the needs of our customers and partners, most of whom are located in approximately 40 centers of excellence across the country. In addition to sales specialists, we have marketers, patient services, market access professionals, as well as medical science liaisons and patient advocates for engaging with key customers. While initially built to support the launch of OLPRUVA, this same group of professionals will launch arimoclomol, if approved. We've initiated several strategies that are being utilized to build awareness of OLPRUVA, which is currently quite low. For example, we have established Quick Start, which is a 30-day free trial to allow patients and physicians to gain experience with OLPRUVA. We're working with patient advocacy groups, the patient community, and UCDs centers of excellence to drive brand recognition. We're also working with payors to ensure broad market access for patients. We've seen meaningful growth in reimbursement coverage, which was approximately 55% at the time of acquisition to now more than 70% of covered lives. While it's too early in the launch to provide data on today's call, we're monitoring key launch indicators, including new patient enrollments, number of covered lives, and net revenue. As previously mentioned, the commercial footprint we established provides a high strategic fit for arimoclomol, as the majority of prescribers for both products work within the same centers of excellence. If arimoclomol is approved, we believe its close proximity and overlap in patient care will allow us to realign synergies and scale with the infrastructure that we built. As a reminder, arimoclomol is our drug candidate in development for the treatment of Niemann-Pick type C or NPC. NPC is a rare genetic, aggressive, and potentially fatal neurologic disease. Earlier this month, the FDA assigned a new PDUFA date of September 21, 2024, and reaffirmed its intent to present the resubmission for discussion at an advisory committee meeting. If approved, we intend to utilize our clinical data, as well as real-world evidence and the data from our expanded access program to support market access, reimbursement, and treatment decisions to establish arimoclomol as the foundation of treatment for people with NPC. We will continue to work closely with key opinion leaders to educate on arimoclomol's clinical profile and raise awareness of the heterogeneous presentation of NPC, which may include neurological and psychiatric symptoms, all of which make NPC difficult to identify and diagnose. Because of this, the time to diagnosis remains a significant unmet need in the NPC community. Therefore, we're working with patient advocates to drive early diagnosis and support efforts for NPC to be included in newborn screening. Together with an approved indication, these initiatives will help drive the evolution of treatment guidelines and accelerate the time to diagnosis and treatment initiation. We will continue to work with all stakeholders to develop patient services that will provide access and a positive experience. We applaud the NPC patient advocacy community, who united and submitted a compelling response to an informal petition to the FDA in support of arimoclomol's approval. We have received nearly 1,000 signatures from 47 states vouching for their support. As the FDA review continues, Zevra will maintain our expanded access program for arimoclomol and continue working tirelessly to bring this potential therapy to patients as soon as possible. Now I'd like to turn your attention to KP1077, our clinical candidate being developed as a treatment for idiopathic hypersomnia or IH. IH is a rare chronic sleep disorder characterized by excessive daytime sleepiness and an uncontrollable need to sleep, as well as difficulty waking up from sleep in most instances despite average or longer amounts of sleep. As you may recall, KP1077, serdexmethylphenidate or SDX was designed to steadily deliver active ingredients. This unique pharmacokinetic profile allows for flexible dosing to overcome these primary IH symptoms. The design also ensures that patients receive a high strength concentration when they need it most. SDX is designated as a Schedule 4 controlled substance by the Drug Enforcement Administration. Earlier this week, we announced positive top-line data from our placebo-controlled, double-blind proof of concept Phase II study evaluating the safety and tolerability of KP1077 in patients with IH. Consistent with the interim data that we previously reported in Q4, KP1077 was well-tolerated at all dose levels evaluated in the study, including the highest dose of 320 milligrams daily and a dosing regimen of either once or twice daily. The most common adverse events were insomnia, headache, anxiety, nausea, and decreased appetite. Due to KP1077's unique pharmacokinetic profile, adverse events were mostly mild in severity, despite higher overall exposure levels. These data support the study's primary endpoint of safety and tolerability. Top-line results from the Phase II study also showed that KP1077 produced critical meaningful improvement in excessive daytime sleepiness or EDS, as assessed by change from baseline in the Epworth Sleepiness Scale during the 5-week open-label titration period, which was maintained throughout the two-week double-blind withdrawal period. Additionally, patients administered KP1077 showed benefit and change from baseline at the end of the open-label titration, and at the end of the double-blind withdrawal period for the IH severity scale, the sleep inertia visual analog scale, and brain severity scale. The study successfully fulfilled the objectives by providing key information for the design of a potentially pivotal efficacy trial, and the results of the secondary efficacy endpoints are supportive of initiating a Phase III trial of KP1077. We plan to request an end-of-Phase II meeting with the FDA to seek guidance on Phase III clinical trial design. We are pleased with the top-line data and believe that KP1077 can provide a significant benefit to the estimated 37,000 people in the U.S. who are currently diagnosed with IH. With only one FDA-approved treatment for IH, there remains an unmet need for therapies with different mechanisms of action to address symptoms including sleep inertia, excessive daytime sleepiness, and cognitive dysfunction. We look forward to presenting the results from our Phase II study at the upcoming SLEEP 2024 conference this fall. In summary, we're pleased with our progress in the fourth quarter. As we enter 2024, we have three areas of focus: First, to successfully launch OLPRUVA and ensure access for patients. Second, to prepare for the potential launch of arimoclomol. And third, to advance KP1077 in sleep disorders. We believe that we are well-positioned to continue to execute and deliver on these key strategic objectives. Now I'll hand the call over to LaDuane, who will provide an update on our financial results and outlook.

Thank you, and good afternoon. 2023 was a time of incredible progress as we seek to make therapies available to people living with rare diseases. Our financial results for the quarter and full year reflect our continued investment in advancing our development programs and building out our commercial capabilities. As Neil pointed out at the beginning of the call, we are restating our previously issued financial statements for the fiscal year ended 2022, including all interim periods and the interim period in 2023 due to a change in the accounting with certain cash settlement features. Warrants from 2021 have been classified as equity and are now accounted for as a liability, resulting in noncash fair value adjustments that will be recognized at the end of each reporting period. This change and the related noncash adjustments are expected to have no direct impact on the company's cash, cash equivalents, and investments, our forecasted runway, or our business operations. Now on our financial results for Q4 2023. We reported net revenue of $13.2 million. This was a solid quarter in which we met the milestone of $10 million under the AZSTARYS license agreement as annual net sales for that product surpassed $50 million for the year. Revenue also included royalties under the license, which rose to $1.3 million for the period compared to $900,000 in Q3 2023. Net reimbursements from the French expanded access program for arimoclomol were $1.8 million, and there was recognition of initial sales of the approval. R&D expenses for the quarter were $1.4 million, which was primarily driven by the Phase III study in KP1077 that has since been completed, along with preparing the FDA for resubmission. General and administrative expenses were $14.7 million. The period-over-period increase was primarily related to personnel costs and professional fees associated with our investments in our commercial infrastructure as well as our business development activities, which included the closing of the Acer acquisition. Net loss for Q4 2023 was $19.6 million or $0.51 per basic and diluted share. Our full year 2023 loss included net revenue of $27.5 million, which was primarily driven by the $15 million in total net sales milestones earned under the AZSTARYS license agreement, royalties of $3.8 million, and net reimbursements from the French early access program for arimoclomol, totaling $8.6 million for the year. Total R&D expenses were $39.8 million and G&A expenses were $34.3 million. We reported a net loss of $46 million or $1.30 per basic and diluted share for 2023, which includes the noncash impact of the change in fair value adjustment for the liability of $1.4 million or $0.04 per basic and diluted share. As of year-end, total cash, cash equivalents, and securities were $67.7 million, which was a decrease of $15.7 million compared to September 30, 2023. Total shares of common stock outstanding were 41.5 million and fully diluted shares outstanding were 38.2 million, which includes approximately 5.6 million shares issuable upon exercise of warrants. Looking ahead, our available resources are expected to support our forecasted operating cash runway into 2026, and we intend to evaluate the optimization of our debt structure. Our forecast includes commercial revenue from sales of OLPRUVA and ongoing reimbursements from the French expanded access program for arimoclomol, but it does not include commercial revenue from sales of arimoclomol or the sale of the priority review voucher, which will follow potential FDA approval. We remain optimistic about the opportunities we have in store during 2024, and our focus is on creating long-term value for shareholders by consistently executing against our plan and supporting our mission to becoming a leading rare disease company. Now our colleagues, Josh, Christal, and Adrian will join us for our Q&A session. Operator, please open the floor for questions.

We'll take our first question from Oren Livnat with H.C. Wainwright.

I have a couple. I'm really curious about this OLPRUVA launch. It sounds like you've got your infrastructure in place and maybe are just now trying to build awareness. I know you're not providing guidance, certainly not on a product-specific basis, but should we expect material revenue growth for that product this year? Or is this more about just sampling and awareness building and just getting all the processes worked out, especially ahead of arimoclomol? And on arimoclomol, can you just talk about what, if anything you can say about your expectations around an advisory committee meeting as far as what areas of focus you are most preparing for, where do you think the agency might be most interested, whether it be the connection between real-world data and your clinical data or validation and statistical issues? Anything you can provide on that would be really helpful.

Oren, it's Josh. Thanks for the question. With regards to the OLPRUVA performance, as you noted, we are in full launch. And as Neil just mentioned, effective at the end of January, we had the entire commercial and medical team out engaging with our customers. We knew at the beginning of all this that awareness for OLPRUVA and Zevra was quite low. But OLPRUVA in particular, if you'll recall, it was approved through a 505(b)(2) pathway, which meant that it had very little clinical experience. Our priorities have really been around driving awareness and ensuring that patients have access to OLPRUVA. To do that, our team is working with physicians to identify the appropriate patients. We have a Quick Start program in place to ensure that patients can experience the benefits of OLPRUVA. Our reimbursement is increasing from 55% to over 70%. So it is too early for us to give any guidance on performance and revenue. We will be watching new patient enrollments, covered lives, and net sales as we go, and we'll be providing updates on a quarterly basis. I will ask Adrian on the agency and the potential focus of the advisory committee meeting.

So the FDA has not currently confirmed the advisory committee meeting. So there is a hold on the advisory committee meeting, and nobody has been preparing for the advisory committee meeting. As far as the submission goes, we know what the questions were that the agency was looking for. We're focusing on addressing those, and it is important to tell the story that the data shows a significant pain benefit for patients. Some additional information that we got during the two B meetings prior to our resubmission has also moved to the forward, focusing on what we consider clear efficacy in these patients and a clear benefit of this profile.

Next question from Jonathan Aschoff with ROTH MKM.

I haven't had a chance to read the press release. It came out a little late, and there are a whole bunch of calls. But can you help us better understand the magnitude of benefits in IH and thus your optimism for an end of Phase II meeting that has gone so well and inform Phase III design?

Absolutely. First, we really focused on what the Phase II trial is trying to achieve. This is a trial that was designed to demonstrate safety and tolerability and inform us on how to design development in IH. Part of the secondary endpoints was looking at the insomnia scoring scale. We saw clinically meaningful improvements, not only in the titration phase, but also in the withdrawal phase. As said, these trials are designed to show statistical significance. We are planning to present this data at the 324 meeting, and we're on data embargo. So we will discuss the data there with the feedback for that will attend.

Okay, so when you did this trial, you optimized these people to any one of the four different doses. So it's a complete random smattering like it's not 16 patients per dose. It's whatever was their optimum dose; that's where they land. There's no balance among those four groups.

That is correct.

Okay. So after seeing the Phase II press release, are you still contemplating a narcolepsy trial because the word narcolepsy is not in that press release on Tuesday? I was just curious why that was.

Thanks, Josh. It's Neil. We're taking the data that we've got now from our Phase II to inform a Phase III in IH. But we're also understanding some of our Phase I data to unlock the value of the broader sleep disorder opportunities. So we're evaluating that, but we have no further comments today on if we're going to move forward into narcolepsy.

Okay. And just a quick answer now. OLPRUVA is going to wait to see how you track with the first indication, correct? Or do you have development plans for MSA such you could even give us a timeline?

So you are correct. We're waiting to do a full evaluation of our portfolio and strategic plan before we make any decisions on narcolepsy.

Okay. Lastly, when it comes to the advisory committee meeting, do companies typically have any sort of back-and-forth with the patient community as they get strategized in any way? And if so, do you intend anything like that? Or does everyone just show up?

Yes, this is Christal. It's very important for the company to engage with the Innovation MC Group, and we are actively doing that. We were particularly pleased to see the participation of patients and physicians. This is something we will continue to prioritize, ensuring that the voices of the patients are represented at the advisory committee meeting in their own way.

We will take our next question from Sumant Kulkarni with Canaccord.

I have two. First one is, have you had any interactions with the FDA on the pending arimoclomol filing? You announced the three-month extension of the action date, and how have those discussions gone?

Thank you, Sumant. Maybe I'll take that one. We received as part of the NDA resubmission information requests from the agency, which we've been able to satisfy and return in a timely way. One of those requests, as we've announced previously, was satisfied, which became a major amendment, causing the delay of three months and our September 21 PDUFA. We are having those discussions; information requests are coming in, and we're able to satisfy information requests in a timely fashion.

Got it. And then on the recent Phase II data in IH, we're yet to see any quantitative details because of the sleeping-related embargo. But qualitatively, would you say there was anything counterintuitive either in a positive or negative way in the data relative to your original expectations?

I think the most important lesson from this was on the primary endpoint. We dosed patients at 20 milligrams, which is a pretty high dose, higher than the dose in patients. We saw no increase in the safety profile, and more importantly, the cardiovascular safety profile is exactly as we had expected, and there's no changes in the cardiac safety profile. So we have a compound with electrical safety for patients with insomnia.

We'll take our next question from Louise Chen with Cantor Fitzgerald.

First question on KP1077. Post results, I wanted to know how you view competitors in IH. What differentiates KP1077? Our second question is on arimoclomol. So where pediatric development stands this year. If the much more highly likely to get approved and a program becomes terminated, how might that impact the value of arimoclomol's PRV?

You were challenging to hear. I understood the question to be if we were going to get a PRV with approval of arimoclomol. Is that correct? And then the other 1077 program in regards to the differentiation from competitors?

Yes, that's correct.

Okay. So yes, we have a PRV that will be issued upon approval with arimoclomol's NDA approval. So that does.

I would add, Neil, that part of what you mentioned relates to the likelihood of the program ending this year. Based on our analysis and the information we’ve gathered from various sources, if that program does end, the value could potentially increase. We will evaluate this further, but that reflects our current perspective.

Adrian here. In regards to the competition in the space, we have a differentiated profile with a unique pharmacokinetic profile in the market and a specific mode of action being a stimulant. There's only one scheduled 4 program. And as I said previously, the cardiovascular safety stands out when you look at the benefit of this program compared to others on the market.

We will take our next question from Tim Lugo with William Blair.

This is Lachlan on for Ken. I guess first is just on the OLPRUVA launch. It sounds like obviously lower awareness; maybe you don't have a ton of experience. But can you maybe talk about the feedback that you've gotten thus far? I know you do have experience. And then second, I understand RAVICTI is meant to lose exclusivity at some point in the next year or two. So can you just sort of talk about your expectations for that and what it might mean for the market and for OLPRUVA, maybe what sort of scenario is there?

Sure. Thanks for the question. Yes, feedback has been favorable for the reasons that I stated. Our primary objective now is to really build that awareness, working with physicians to identify the appropriate patients and to put in place programs so that patients can gain that experience with OLPRUVA. The initial feedback that we're getting is that those patients who have had experience with OLPRUVA are continuing on that. We have a number of patients who are continuing to get refills of OLPRUVA, and that really bodes well for future uptake. In terms of RAVICTI and the patent expiration, it is really the entrance of authorized generics. We are aware that later next year, it's likely that an authorized generic will come into the market, and potentially a second thereafter. We view that really as an entrance into the higher end of the market, specifically, a product with the same formulation. OLPRUVA is very much slightly differentiated from the off-patent generics that come into the market, and we believe that we've got a great position and are well-priced to be able to compete in this market.

And next, we have a follow-up question from Oren Livnat with H.C. Wainwright.

Just to follow up again on OLPRUVA. I know it's quite early, but as you get more patients hopefully into the funnel, to the referral network, and then as you try to get them through adjudication to paid therapy. Are you finding that you're being held to the hurdle of being compared to a generic from a cost perspective? Or is the bar more likely lower and that you're essentially being benchmarked against market-leading? And regarding the patients you're going after, are you assuming current RAVICTI patients are low-hanging fruit given you've got a presumably much superior product here from the patient perspective? Conversely, are they maybe the stable business and your target?

Yes. All branded products in this space are required to have some form of set rate. It is not unique for OLPRUVA to have a set rate where a generic is required first. So we're seeing patients flowing through that very, very quickly. Both physicians and patients are making decisions based on what the next best clinical benefit opportunity is for the patients. Many of the physicians that we have been speaking with, albeit in just a few short weeks that we've had really find OLPRUVA to have the most clinically differentiated beneficial profile for these patients. It is still too early for us to give any incentive answers to that, Oren, because the early signals are that again the profile of OLPRUVA is leading towards patients switching both RAVICTI and another product.

I'm going to add one additional comment to that. Yes, one additional comment to that. I think that's an important perspective. As Josh mentioned, the approach to getting patients on therapy is fairly consistent; our improvement of the reimbursement of covered lives from 55% up to 70% really puts us close to parity in that area, which can then drive that awareness and clinical differentiation from the other products in the market. With our Quick Start program and other awareness campaigns that we're moving forward with, we will allow patients to have an option and physicians an option.

Thank you, operator. The fourth quarter of 2023 was a period of tremendous transformation for Zevra. We made solid progress towards achieving our mission of building a leading patient-focused rare disease company. As we look to 2024, our key strategic priorities are clear, and we look forward to updating you in the future. Thanks for joining us today.

This does conclude today's program. Thank you for your participation, and you may disconnect at any time.