Q1 2020 Earnings Call
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Welcome to the first quarter 2020 financial results conference call and webcast for Kindred Bio Sciences. At this time, all participants have been placed on that listen only mode. At the end up prepared statements participants will have the opportunity to ask questions to ask a question press star one on your telephone keypad.
Pad.
Please note that the remarks today will include forward looking statements.
And the actual results could differ materially from those projected or implied in our forward looking statements for a description of important factors that could cause actual results to differ we refer you to the forward looking statements in today's press release and the note on forward looking statements in the company's FCC filings.
It is now my pleasure to turn the call over to Kindred Bio's CEO Richard Chan Dr. Chan. Please proceed.
Thank you operator, good afternoon, and welcome to our first quarter Twentytwenty financial results.
Joining me today from the management team of Kindred bio why Denise Bevers, our president and COO.
Andy we our CFO.
And catch up your our VP of corporate development and Investor Relations.
In the middle of the scope at 19 crisis, we hope that our listeners are healthy.
It is difficult time for all of our community and it's time for all of us to pull together.
I'm happy to report that so far our team at Kindred bio has been healthy.
And while there has been some impact on our business. We are fortunate to operate in a market.
It's been resilient to half economic downturns, and we have weathered the storm so far.
In fact, we had a successful first quarter.
I would note we announced that.
We had positive pilot study results fourth.
Thanks.
Welcome, while 13 aisle for which are very important in the biology dermatitis.
It's human analog Dupilumab is a very successful molecule approved for atopic dermatitis and people.
If we step back it's really remarkable that we have had eight positive pilot studies Raul I don't know any other company that has a track record like that and I think it speaks to the quality of the work we're doing in development.
We also closed the 43 million dollar transaction premieres has.
Ongoing royalty as we mentioned on our last call the size of that transaction validates the value we are building.
Figure is significantly higher than our expectation and represents a very attractive ROI.
Unfortunately in the first quarter, we had to make some difficult decision.
Following the merits have transaction, we downsized the organization, which was gut wrenching given the world class commercial organization, we've build and dedication over those employees.
We ultimately did not succeed and our commercialization endeavor and just says we highlight our achievements we have to acknowledge our failures.
We misjudged the size of with Salesforce that will be necessary to maximize Maritimes this value.
However, the mark of a strong leadership team is the willingness to recognize the mistakes.
Hey, good and turn a failure into a success.
We believe we've done that with Maritech.
In addition, Gordon we have more successes pent expected as the case with our pipeline. We also have to respond to that.
As we announced last quarter, we have decided to focus on biologics for dogs and cats.
Because with a stream of positive study readout and no natural attrition, we did not have the resources to advance all of our promising program.
We chose biologic of course because of the market size and the strong competitive advantage. We believe we have in that space.
We have a significant headstart on many of our program.
We have end to end capabilities, including on manufacturing plant.
And we have intellectual property on technologies like half life extension FC modification that will make it harder given impossible for our competitors to do what we're doing.
For example, we believe it will be very difficult for our competitors to manufactured home of the canine antibody is economically and that they license our technology.
Now turning to dermatitis, we have multiple promising candidates and after internal assessment, we have decided to prioritize our oil for antibody over sink at this point given how promising file for art is and how well it's progressing.
Both idle for our and think look very promising but we have to prioritize wanted the other.
I should also note that the all four program is also.
Way ahead of schedule and has moved faster than we had expected thanks to our team.
It's also worth while noting that given our partnership focus commercialization commercialization strategy and consistent with the interest we've seen in our dermatitis pipeline think could still advance should partners want to absorb the development.
We are continuing told to prioritize our IL 31, and part of a virus programs. We continue to expect initiation of the IL 31 pivotal study this year and the Parva wire antibody program is on track.
As we sat on our last call. We anticipate that we will continue to look for larger commercial partners for our products going forward and do more closely to the human biotech model, where smaller companies partner with larger companies for the majority of drugs.
It's a successful validated model that we expect to replicate.
The discussions with potential partners have been preceding Ext exceedingly well, there's a lot of interest in our pipeline and in our manufacturing capability.
Specifically as Europe as Youre aware, we have been an extensive discussions with potential partners on our IL 31 antibody, we have attractive transaction terms right now and the molecule and we're in the process of weighing the pros and cons of partnering now versus later.
As we learn from Maritech the value of the product candidates is much higher if the partnership is fine later in the development as compared to earlier.
I know this process has been taking a long long time, but we would much rather to the rights deal even if it takes longer.
For the equine molecules, we expect that we will come to a decision on the strategic options for that franchise, while early July.
Turning to the financials when do you will discuss in more detail, but the restructuring last quarter did result in a onetime charge.
Excluding our onetime charges, we will achieve our goal of turning opex around here, we are committed to substantially reducing our cash expenditures even further next year, especially since we've decreased spending on the commercial infrastructure.
Given the business model, we have we have the unique ability to be granular on spend and adapt to different market environments as needed.
So to summarize we have validated that we can monetize our assets on attractive terms and that there is strong demand for our innovative products, particularly after they have been theorist. We all we have a number of programs that we expect could have an order of magnitude critter per commercial potential then Mira task.
And we're within one to three years of approval on those candidates.
We now have eight programs in a row would that have achieved proof of concept in pilot studies.
We are into fortunate position of having more products in our pipeline that we can pursue so we're prioritizing those that are the most promising.
We have an exceptional team that has proven.
That we can execute with two U.S. approvals and an EU approval.
The veterinary market has been resilient to prior economic challenges and with the uptick in pet adoption rate more recently and ongoing trend towards human.
Position of pets, we believe the long term fundamentals for this industry remains strong.
We look forward to another successful year.
With that let me turn to call over to Denise.
Thank you Richard.
We are pleased to update you on both our first quarter progress and the strategic realignment. We unveiled in mid March as you know the sale of marriage has was completed within a month of announcement, which is a testament to deckers commitment to the product and desire to promptly begin marketing in the U.S. in Europe.
Even record sales for distributors to veterinary clinics in the first quarter. We're confident merits has is on track to be a successful product in the hands of deckers expansive commercial infrastructure.
With the sale now finalized and strategic evaluation of the equine franchise advancing our R&D team is fully dedicated to our promising biologics pipeline, which is where we believe we can create the most value and have the clearest competitive advantage.
While our other biologic programs progressed as planned in the first quarter as a result of cobot 19, we have since absurd observe some disruption to our ongoing field studies a number of veterinary clinics are not conducting clinical trials, which affects our studies for non regenerative anemia and inflammatory bowel disease.
As a result, we are accelerating training of new sites that remain operational all the while taking the necessary precautions to protect the safety of study participants clinical trials staff at employees.
Additionally, we are actively implementing practices consistent with guidance from FDA on studies conducted during cobot 19 to minimize the impact on timelines.
This could include activities such as.
Less frequent monitoring of patients virtual study visits and in home clinical services.
Other than the delay to clinical trials, there has been little impact from Cobot 19 on our operations more broadly.
Because much of our workforce already works remotely we are well equipped from an IP and systems standpoint for the current operating environment. So it's largely been business as usual.
We are considered to be an essential business. So our manufacturing facilities remain fully operational which has the benefit of in house capabilities in this current climates.
Of course employee safety is paramount and for roles such as manufacturing that require employees to be on site, we've instituted practices to minimize risk, including social distancing procedures more frequent and thorough cleaning and other such practices.
Turning to our biologics pipeline there otherwise been no changes to the stated timeline since our fourth quarter update.
Beginning with our canine a topic dermatitis program. The scale up process is proceeding as planned for our IL 31 program and we're on track to start the pivotal effectiveness study in the second half of this year.
As Richard mentioned, we saw positive results from the pilot efficacy study of our ill for 13 think program.
For our I'll for our program, having unveiled positive results from the laboratory pilot study in December a second pilot study to further assessed efficacy and dosing is planned to commence shortly.
The ill for our program is advancing ahead of schedule and as being prioritized ahead of.
We expect to develop multiple products for industry to take advantage of heterogeneity among patients rotation between different drug classes and the potential for combination therapy.
As I discussed earlier, our programs for the control of non regenerative anemia, and cats and inflammatory bowel disease and dogs have been impacted by cobot 19. Consequently completion of the pilot field effectiveness study for our IBSD program is now expected to extend beyond the first half of 2020, we are implementing practices to minimize the impact.
Act on timelines and will provide an update with the second quarter results.
Finally, we are thrilled to be nearing our first biologic approval pivotal studies for our Parva virus program are expected to be completed in 2020 with the approval timeline unchanged.
Now turning to merits has net product revenues totaled point 6 million in the first three months of the year, reflecting limited distributor stocking during the mirror test sale negotiation.
Sales of Mirataz from distributors to veterinary clinics reached a record 1.6 million in the quarter underscoring continued growth in can in can cause and customer adoption.
Looking ahead Decker plans to launch merits has in the UK and the European Union and intends to conduct the necessary regulatory activities to achieve approval in other key international markets.
With the sale completed in mid April royalties on future global sales of Mirataz by Dechra will be recorded by kindred bio as revenue.
Regarding side Mehta, we recorded net product revenues of 7000 in the first quarter of the year, reflecting expected limited equine activity during the winter months and a downturn in equine transportation as a result of cobot 19.
Seasonally the first quarter is the weakest in the equine market with activity picking up in the spring among vacs mid vaccination season, and the resumption of equine events as temperatures rise.
And application for a sign that it was submitted to Canada in November with anticipated approval in the second quarter.
On behalf of the entire kindred bio team I look forward to achieving significant milestones in the second half of this year.
We are proud to be developing innovative medications for our beloved family members, particularly during these challenging times with that I'll hand, the call over to Wendy for a review of our financial results.
Thanks Denise.
The strategic realignment, we announced in mid March not only sharpens, our focus on our highest value biologics programs that positions kindred bio's strongly in the current operating environment.
Proceeds from the mirror attached transactions alongside the reduction in our workforce and operations.
Our extending cash runway during this period of uncertainty while maintaining a focus we search engine.
In recognition of more challenging market conditions, we are diligently managing our spend.
This includes the prioritization of investments.
Reduction in discretionary expenditures, which has already lowered our planned annual spend versus the guidance provided last quarter.
We continue to see opportunities for the savings and conducting a liquid.
Evaluation of expenditures.
Turning to all financial results.
In the first quarter, we reported a net loss of 22.8 million or 58 cents per share as compared to a net loss of $16.1 million or 42 cents per share for the same period in 2019.
This includes a nonrecurring charge of 5.1 million.
Net product revenues for mirror test totaled 0.6 million compared to 0.5 million for the year ago period.
While Ximena Ivy net revenues was 7000 in the first quarter.
Cost of product sales totaled 82000 in the first quarter up 2020 compared to 92000 in the same period in 2019, resulting in a gross margin of 86% and 82% respectively.
In the quarter, we recorded a 3.5 million write off on lira task due to transition to dechra branding for the product.
Research and development expenses rose to 1.7 million year over year to 8.9 million.
Reflecting the inclusion of expenses from the Kansas facility, given the commercial given the commencement of clinical trial manufacturing.
Prior to the first quarter construction and commissioning expenditures for the Kansas facility had been categorized as general and administrative expenses.
Stock based compensation expense related to R&D was 0.6 million in the first quarter applicant pad to zero point $4 million for the year ago period.
So we categorization of Kansas plant expenditures resulted in a corresponding decrease in selling general and administrative expenses.
Which was partially offset by higher legal fees.
As DNA expenses declined 1 million year over year to 8.9 million in the first quarter.
Stock based compensation expense was 1.5 million for the 2021st quarter versus 1.4 million in the year ago period.
Consistent with guidance provided in our fourth quarter results, the first quarter restructuring charge related to the strategically alignment and associated workforce reduction totaled 1.7 million.
As of March 31.
Kindred bio had 54.6 million in cash cash equivalents and investments compared with 73.5 million as of December 31st.
2019.
Net cash used in operating activities for the first quarter of 2020, plus approximately 17.1 million.
Keep in mind, the first quarter as historically, our peak quarter expenditures comprising of key annual outlays, such as systems maintenance corporate expenses and industry conference call.
It's also important to note that the first quarter reflects a full organizational structure ahead of the restructuring announced mid March.
Alongside the 1.7 million onetime restructuring charge.
We also invested approximately 1.4 million and capital expenditures with the purchase of lab and manufacturing equipment for the Kansas facility.
On April 15, we completed the sale of we are attached to Dechra for an upfront payment of 43 million off which 10% is held in escrow for up to 18 months post closing.
With respect to spending in 2020, we will remain focused on advancing our core biologics pipeline and programs, including the commencement of multiple pivotal studies this year.
We anticipate operating expenses up between 57 and 59 million.
Including the impact of stock.
Excluding the impact of stock based compensation expense and the impact of acquisitions if any.
Additionally, we plan to invest three to 4 million and capital expenditures on lab and manufacturing equipment for our biologics programs. This year.
We believe our existing cash cash equivalents investments proceeds from the merits as sale revenues from anticipated partnerships, including royalties from their task and additional drawdown of 30 million from the debt facility.
Which is contingent upon achievement of certain milestones will be sufficient to fund current operating plan through 2022.
As I mentioned earlier, given the current market environment, we are committed to further reducing opex and currently conducting an in depth evaluation of expenditures.
In closing our transition to a biologics only company that leverages the commercial capabilities of multi national partners to maximize product value is the resulting in a more capital efficient organization positioning us for this current period up and certainty and future success.
I will note and call back over to rich.
Thank you Wendy operator, we're ready for questions.
At this time, if you would like to ask your question. Please press star one on your telephone keypad.
And your first question comes from his line of Jon Block with Stifel.
Hi, This is Tom on for John Thanks for taking my questions.
Turning to start off.
Anymore color you can provide on the use of the manufacturing cycle, Kansas or contract manufacturer.
Sure. So as you know we've been looking into doing contract manufacturing.
And we have actually.
Hired.
This development person, so there's quite a bit of interest actually and on the manufacturing capabilities, because as you probably know antares shortage.
Biologics manufacturing, having said that there's a bit of a lead time for those types of contract. So we are in active discussions.
Currently we don't have any path.
Contract yet.
Got it okay.
So more broadly speaking with.
All the uncertainty in the last few months or so just as a result of cold days. When you think about your ongoing partnership conversations with some of these larger players in animal health, while high level of the total those conversations changed at all or are there any changes in these companies mindsets over the next call.
Through the summer thanks.
You know this this is the beauty of dip at new space.
The answer is no do seem at justice enthusiastic.
Before the last economic downturn 2008 downturn.
Was thought that to veterinary industry would be more vulnerable than other industries to an economic downturn because there was thought that it was a.
Got a necessity.
But it turned out veterinary industries actually wanted the most very resistant industry. When it comes to recession. So so far the tenor of our conversations has not been affected.
Got it thank you.
Sure.
Your next question comes from the line of Brandon Folkes with Cantor Fitzgerald.
Okay.
Hi, good afternoon, because she is currently in for Brendan.
Couple questions here.
I Wonder you have switch more of the partnership model do you expect 2% more detailed data readouts on your pipeline programs going forward.
We see this data showcased animal health conferences at the same time, how has the switch change of heart lung prioritization do you expect you should focus on two specific narrowed down therapeutic areas are you looking to leverage to ban was to explore more of your pipeline. Thank you.
Sure so with regard to the.
Let me start with the second first so in terms of prioritization, we are focusing more on larger markets.
Previously we were also looking at smaller markets because for us smaller markets.
Worthwhile, but going forward the since we'll be partnering our molecules we expect that.
We will spend less time on some of the.
The smaller.
Areas.
However, we do expect that once we have the.
The partnerships that it will allow us to pursue.
Multiple indications so more partnerships we have.
More opportunities.
Now, we'll be able to pursue.
I'm sorry can you get the first question again.
Yes, so basically not yours switching to a partnership model.
Should we expect more data readouts from your Portland, Yes, sorry, yes.
So most likely no we haven't disclosing what we need to because we are public company and.
Both types of data our material.
Im sure that are larger partners would much rather prefer that we had difficult less larger companies generally.
I'd like to keep things under wraps.
As long as possible. So it looks like the we won't change what we're disclosing will be disclosing so far look we have disclosed so far generally have been material information that we need to get out to the market.
Got it makes sense. Thanks, so much.
Yes.
Your next question comes from the line of Sean Lee with H.C. Wainwright.
Hi, guys and thanks for taking my question so I.
I just hope a higher level close from the partnership discussion as you mentioned.
Yes, there's been a fruitful discussions ongoing slowed the out 31 and also for the other atopic dermatitis programs I was wondering.
Considering that the.
Clinical costs, the definitely space or lower than in the human space. What are some of the advantages for you to partner now and what will be some of these entities will partner related.
Yes. So those are exactly the questions that we are.
Grappling with right now the advantage of partnering earlier is that we get the upfront.
Admin side.
<unk> straight diagnostics I think it's not an area, where we have a reason to believe that we can offer an advantage compared to the current incumbents.
Sure. Okay. Thanks, so much richer appreciate your quite sure.
And at this time there are no further questions, which are do you have any closing remarks.
Thank you operator, I'd like to thank our listeners for continued support and we look forward to advancing the pipeline and executing on our business strategy.
Mm.
Thank you for participating this sounds can claim today's conference call you may now disconnect.
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