Q3 2020 Kindred Biosciences Inc Earnings Call
At this time all participants have been placed on a recent only mode. At the end of the prepared statements participants will have the opportunity to ask questions. My first Star then the number one on your telephone keypad to withdraw your question press. The pound key. Please note that the remarks today will include forward look.
Segment, and the actual results could differ materially from those projected or implied.
Now for looking statements for a description of the important factors that could cause actual results to differ we refer you to the following <unk> looking statements in today's press release and I know on the forward looking statements in the company's <unk> SEC filings.
It is my 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 third quarter 2020 financial result.
Joining me today from the management team of Kindred bio are Wendy Wee, our CFO and catch up here, our VP of corporate development and Investor Relations.
We are pleased with our progress in the third quarter.
Manufacturing for our 31 antibody turn up that Matt has been completed.
<unk> has been finalized.
We continue to expect the pivotal study.
She is here.
We remain excited about the blockbuster potential for this product candidate.
And as we said before we think that could capture a significant share of what is likely to become a multibillion dollar market.
Our candidates for atopic dermatitis are progressing well and we recently initiated another pilot study for <unk> for our antibody.
We believe we have one of the broadest.
Most advanced dermatitis pipeline in the industry.
With the exception of the current incumbent we estimate that we are ahead of our competition in this field.
We're excited about our highly promising dermatitis.
Turning to the purple buyers.
We earlier reported compelling results from the full access.
We are in the midst of remaining pivotal studies right now.
We look forward to the results from the safety study and the treatment efficacy study.
There is a lot of excitement both within the company and outside about this program, which offers hope for what is a terrible and currently untreatable disease.
We remain on track for approval early next year and discussions with potential partners are ongoing.
We're also making good progress on other programs we.
We are prioritizing programs as we continue to carefully manage opex.
The book out in the IB studies continue to enroll and we expect the IB study to read out.
Okay.
In sum the projects are proceeding well and we expect to deliver the program on time and on budget.
With regard to the point now.
We could not find a life it turns with the previous need potential partner. So the process is still ongoing.
Turning to financial which one do you will discuss in more detail, we're pleased with the royalty revenue.
Partner is doing a fantastic job with Marin.
We're also pleased with the revenue we're generating from our contract manufacturing.
The work is coming along well on our backs our partnership and we extended that agreement.
We also continue to discuss potential T dmone work with several other companies.
You know, we have world class manufacturing and personnel. This gives us a major competitive advantage.
Presents an opportunity to bring in non dilutive capital from contract manufacturing.
The thing time, our number one focus be made executing on our very attractive pipeline.
We continue to be judicious with our spending and we weren't able to reduce our opex approximately $10 million per quarter in Q3, which is a quarter earlier than we had initially anticipated.
This gets us more than two years of runway during which time, we expect to achieve important milestones on our program.
Like the value of our assets.
We intend to supplement this financing with other sources of non diluted GAAP.
Progress on our deep pipeline on a robust wonderfully positioned us strongly for the future.
The takeaways are that we operate in a resilient and growing industry, we absolutely capitalized.
Reducing our burn, we're making strong progress on high value potential blockbuster product.
We're executing well across the board.
Very excited about our future.
With that I will turn the call over to Wendy for a review of our third quarter financials.
Thanks Richard.
We commenced the second half of the year.
With a streamlined organizational structure focused on our highest value biologics assets positioning kindred bio with the financial resources and R&D expertise to realize the value of our late stage pipeline.
Having identified cost savings decrease in general and administrative expenses and refocus R&D on our most attractive candidates in the first six months of 2020, we have succeeded in significantly reducing operating expenses from its peak, creating a more capital efficient.
Organization moving forward.
Operating expenses totaled approximately 10 million in the third quarter.
And we expect this quarterly run rate to hold broadly steady in the coming year.
Equips kindred bio with funding to mid 2022 actually real life he pipeline milestones.
Turning to our financial results, we reported a net loss of 12.2 million or 31 cents per share in the third quarter as compared to a net loss of 15.3 million or 39 cents per share in the year ago period.
Well the nine months ending September Thirtyth. The net loss was 10.9 million or 28 cents per share versus 45.7 million or adult 18 per share in the year ago period.
The variance reflects proceeds from the sale of Merit task to Dechra, which was completed on April 15th.
Net revenues totaled 1 million and 41.2 million in the three and nine month periods compared with 1.1 million and 2.9 million for the same time frames in 2019.
Here again, the variance in the year to date result was primarily due to proceeds from the memory test sale totaling 38.7 million we.
We recorded royalty revenue of 255000 in the third quarter and 413000 for the first nine months of 2020.
Substantially all product revenues in the nine month period relate to.
They're a test consistent with the completion of the sale in the second quarter No memory test revenue was recorded in the third quarter.
Got up revenue splits I met over 4019 thousand for the three and nine month periods, reflecting a downturn in equine events and transportation due to cope with 19.
Contract manufacturing revenue related to the manufacture of Factsets oral vaccine candidate for COVID-19, total 772000, and 1.3 million based on the percentage of completion of specific milestones in the three and nine months ended September thirtyth.
On October 7th we recorded an expansion of the original.
We announced the expansion of the original Baxalta agreement SVC could make use of excess capacity in both al Burlingame, and Kansas manufacturing facilities, and thereby subsidise out until no pipeline development.
We see the expansion of the backside agreement as an important endorsement of our biologics manufacturing capabilities, which of course are a key component in the success of our own pipeline advancement.
Research and development expenses were consistent year over year totaling 7.4 million in the third quarter with the 7.3 million in the same quarter of 2019.
SGN they expenses declined to 4.7 million from 9.4 million in the prior year quarter.
This reflects the inclusion of Kansas plant expenditures as R&D.
Expenses.
EPS, Kansas began to manufacture clinical trial material combined with the lower payroll and related expenses as a result of the elimination of Kindred Bio's companion sales force.
Prior to 2020 consumer construction and commissioning expenditures associated with the Kansas facility has been cattle rice, that's general and administrative expenses.
Stock based compensation expenses 1.7 million in the quarter.
In connection with the prioritization of Kindred Bio's late stage programs and associated workforce reduction we recorded a restructuring charge of 282000 in the third quarter.
We maintain a strong cash position.
As of September Thirtyth cash cash equivalents and investments totaled 66.8 million compared with 73.5 million at December 31st 2019.
The 2020 cash balance benefits from the memory test sale, which constituted a payment of 38.7 million.
With a balance of 4.3 million held in escrow to be paid out in 2021.
Net cash used in operating activities for the first nine month of 2020 was approximately 3.3 million, reflecting payment received for the Maritech asset sale.
We also invested approximately 3 million in capital expenditures for the purchase of lab and manufacturing equipment for the Kansas facility.
With respect to spending in 2020 as Richard mentioned, we continue to be judicious in our spin and expect quarterly operating expenditures to remain broadly stable on a sequential basis in the fourth quarter.
On a full year basis, we continue to project Opex to range between 53, and 55 million, which includes the restructuring charges.
First quarter expenditures that reflect a full organizational structure and second quarter expenditures that reflect various mid stage development programs.
Excluding these nonrecurring factors the annualized run rate for 2020 is anticipated to be between 41 and 43 million.
Investment in capital expenditures related to lab and manufacturing equipment for a biologics programs is on track to reach between three to 4 million in 2020.
We believe our existing cash cash equivalents and investments the net reduction in the company's workforce remaining proceeds from the memory test sales and revenues in the form of royalties and contract manufacturing will be sufficient to fund the covering the current operating plan through mid 2020.
Two.
In closing we believe we now have the right operational footprint to position us for success without business model.
We look forward to important pipeline catalyst by year end, including the completion of the pivotal efficacy study for a second public virus indication indeed.
Initiation of the ideal study one pivotal study.
And completion up all pilots study for IBT.
Thereafter, we will have the necessary cash runway and R&D talent to realize important development milestones on our promising pipeline.
We look forward to updating you on our progress next quarter I will now turn the call back over to rich.
Thank you Wendy operator, we are ready for questions.
As a reminder to ask a question. Please press Star then the number one on your telephone keypad again that is star one to ask a question on.
And your first question comes from the line of John Block with stifle.
Hi, This is Trevor on for John. Thank you for the question. So just to start things off wondering if you can give a little color on any interest you've gone from potential partners and terrible asset and this one would just be a worldwide agreement or can you give any other detail. There. Thanks, yeah sure we've gotten quite a bit of interest on the part of all assets because this is a.
Very very significant unmet medical need.
It's a unique product that.
Well help in many instances Ah so other product or a potential partner.
Well the partners were talking with or interested in worldwide rights and what we're doing right now.
Taking.
Taking time to discuss the various terms with each of the other partners, but we anticipate that it'll be a deal for both.
Both of the prophylaxis in the treatment indications and for worldwide right.
Great. Thank you so much and then maybe just shifting over the 31 can give any color on the trial you know number of dogs some timing.
He told ever be great.
Yeah, So we have not disclosed the.
Details of the study design, but what we have said is that you can expect the design of the study to be similar to the other antibody.
On the market.
If you're going to do it as well.
Well did you have to unusually to relatively close to the credit for that.
In terms of the timing.
Yeah. That's in the past is that typically studies like the.
31 study would take about 12 months. However, we do not yet know the impact that cold it might have on the enrollment rate. So.
I'd be in a position to give firm timelines until we've had a couple of months of at least two or three months of enrollment under our belt.
Great. Thank you.
Your next question comes from the line of being.
Hey, <unk> online global apart.
Good afternoon, guys. Thanks for taking the questions just curious on how the first public fiber virus submission is coming along and then.
Just thinking about pursuing both indications for parole virus you know what was kind of the calculus that you all went through in deciding to do that I mean was it something related to expanded the market are the dose is going to be different as a is it mainly for the purposes.
Oh, you know partner Marine it all within the desirability of having both indications [laughter] anything you get or any color you could provide there would be helpful. Not sure. The submission is coming along very well. So the team is already working on that and in terms of the indication there are two unmet medical needs in the park.
Virus.
Field one is obviously.
All kind of gotten affected.
And right now there is no treatment, there's only supported care. So that is a very very large unmet medical need and more.
Area.
Medical medical need because you could tell us the rate is very high.
Animals on treatment.
On top of that there you see a need for.
Preventing the disease.
And animals that have been exposed for me.
And that's because the.
This is very contagious.
And you can get.
Docking contract.
Buyers from even a small.
Oh sure they can go to <unk> and indirect exposure.
And for every dog that isn't affected there.
Or are these.
Three dogs or more God, Oh aren't exposed to powerful virus, who are at risk.
Okay.
So this is a market that is larger in terms of number about animal.
Probably smaller.
Our.
Lots of Oh I have a.
Syria fed medical unmet medical need because they have not developed the disease.
However, they are there are two distinct.
Met medical need.
And you can't always extrapolate results from one person.
Versus the other so we wanted to make sure we captured both markets.
Both.
Study.
Okay that makes sense I mean, I would think that a lot of them would be <unk> or <unk>. If youve got approved for one or the other or was it would probably be use extra label or off label, but I guess it makes sense to go after after both of all this and thinking yeah, Yeah, I think you're absolutely right we got on.
The market with just one.
And I think Oh.
The veterinarians and the owner would definitely use it and the other indication. Unfortunately these studies are fairly Craig.
Fairly inexpensive so.
We decided to invest the money.
One indication, but you're right.
Getting it approved for either indication.
It would probably be right.
Anyway.
Okay, and that's a good point on the cost of it being relatively inexpensive then you know I suppose what the the Pfizer news today does that change anything with the ER Vacs art vaccine candidate or anything you can speak to there and then.
When you're looking at a C.D. I'm all work for other companies that you know what kinda enters the equation in terms of you know is there a certain gross margin target that you have for these things as a is obviously considerations need to be made for your own or capacity either now or.
Down the road, what what enters into the equation there.
The today's announcement by Pfizer, which fantastic Oh by the way doesn't impact us directly.
In fact, I'm sorry, but.
We can't speak to them.
The contract we have.
Well I think well move forward. So I don't think that's kinda change now.
So in terms of your second question, what we do is we try to fill up the excess capacity.
So.
We.
Don't Oh wants.
He wants to go down any of our internal programs. So.
We set aside the manufacturing phosphorus, though and then we try to fill the excess capacity and there's not a specific target in terms of margin. However, the CDMO business has relatively good margins and what we're finding is that.
We can get business or it looks like we're going to get.
Oh, there's a.
By charging the standard going right.
Which does get pretty.
Attractive model anymore.
Yeah fair enough. Thanks for taking the questions guys sure.
And your next question comes from the line of David.
[noise] Berg with Guggenheim.
Hi, Thanks for taking the question <unk> recent competitor launched a product and hunger for cats I realized it's now just a royalty stream, but it is no injury probably helpful that have that royalty given that.
Yes.
With the cash burn so how should we think about the difference in that launch.
The competitive launch it in terms of the market.
Yep.
Oh.
The product that you're thinking though was approved for.
Narrower indication for merit.
So I think.
It'll be targeting.
A subset of the market they won't be able to target the entire market.
When you have a second competitor enter a market like.
Oh wait bought for management of wasteful.
It's often counter intuitively increases the sales.
The first product and that's.
Often the case, when it's a new market that needs to be developed and having multiple companies talking about the disease state can often be beneficial to both product. So.
So we think that May happen, we don't know yet Oh, we think that maritime is a very very strong product and.
Doing very well in the hands of our partner. So we anticipate that that will continue to climb.
And we'll have to watch to see.
Yeah.
Oh, what a competitor.
<unk>.
Got it thank you.
13, kind 16 <unk>.
<unk> a little bit late <unk>.
I think your estimate was correct me if I'm wrong 12, 12 to 18 months. It. It was on the high end of that estimate do you still think you'd be stuck into marketing.
Right at least third how much of a difference does it make it.
It's a second to market its a jack versus another monoclonal antibody <unk>, yes.
No.
No.
All the other products that are being developed but of the ones that we do know.
That are being developed for atopic dermatitis, we are still in the lead and our expectation is that we would be the next product coming to the market now we believe that ultimately the antibodies are going to take a lion's share of the market. So.
Additional JAK inhibitors that come on to the market were not nearly as concerned about.
Compared to central author Biologics.
And.
Oh yeah.
<unk> cobot slowed down our study.
Well have a similar impact on any other studies that are ongoing so.
We don't think that's going to change the order Oh.
Approval of drugs that are the pipeline, but we are right now we believe we have.
Your Oh sorry.
Other potential product for this indication.
Thank you and then just maybe a housekeeping question the the burn rate.
Four quarters of cash I mean, or a quarter is a cash you know $10 million burn.
$8 million.
$67 million in cash does that mean in the assumption, there's an assumption for royalty contract manufacturing contribution of $13 million am I doing that.
Correct in that assumption or just way, we think about that cash burn.
Thank you.
Wendy yes, the cash runway takes into consideration a marriage has royalty as small as contract manufacturing revenue.
So that comes into play.
Perfect all right. Thank you very much sure [laughter].
Again at this time in order to ask a question. Please press star and the number one on your telephone keypad again star one to ask a question.
And your next question comes from the line.
Following my Hello.
Okay with H.C. Wainwright.
Thank you good evening, Richard and Andy This is RK from Pennsylvania.
Hi, Arnie.
I I know that most of the chain and its related questions have been asked.
Regarding the the feeling that support Jean.
He called lender that support Genworth since you have been doing for the last one year. So they are the studies at this point, how and how much of an impact does COVID-19 have gone on the understood. It sells on how it's being conducted so.
There's just too much color on it yeah.
The study is still enrolling and we always knew that this would be a slow studied too.
Unlike atopic dermatitis for example, where it's very obvious that the animal disease.
Anemia, you have to screen for to do a laptop.
So we always knew it would be slow the enrollment has been significantly impacted by costs.
Yeah.
Right.
Has picked up a little bit to veterinary clinics.
Have opened but we still anticipate it's going to take quite a while.
This is also program that's lower priority than some of the other programs. So we are not devoting much resources towards that.
The topic dermatitis program, obviously, because we.
We are.
Managing opex carefully.
So.
It's going well, but it is going fairly slowly.
Okay. Thanks for that and then on the acquiring business. So I know you have.
I've been trying to do it.
A brokerage tried to cheap options for this business read out you in that process. How close are you not.
Getting to association.
Or is this also.
There.
Is this all just also we're also getting impacted because of 19.
And that's the reason why it's taking a little longer time.
So it's an indirectly impacted I wouldn't think of it yeah.
Discussion, but what it has done a little.
A little bit harder to agree on a valuation.
Cause with all the horror shows being shut down.
The it's hard to estimate what the true.
No.
Hi matter for example, what the sales would be is this where under normal environment, but.
It's not an indirect impact but.
Right now were talking to multiple partners. So the original deal that we're looking at didn't quite.
Go all the way through to consummation, which is not uncommon often you have a non binding term sheet and no.
Things can change.
What I can say is there are multiple.
Interest is part interested parties and.
Hope to have this wrapped up in the next several months.
Okay. Thank you. Thank you Richard Thanks for the time, I and I've talked to.
Thank you I would not want to turn the call back over to.
Mr. Richard CEO.
Thank you for any further comments.
Thank you operator, I'd like to thank car.
Your support as we continue to add.
Our promising pipeline.
This concludes today's conference call you may now disconnect.
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