Q1 2021 Kindred Biosciences Inc Earnings Call
Welcome to the first quarter 2021 financial results conference call and webcast for Kindred Biosciences at this time all participants have been placed on listen only mode. At the end of the prepared statements participants will have the opportunity to ask questions to ask a question. During this session you will need to press star one on your telephone.
Please note that the remarks made today will include forward looking statements and that 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 the forward looking statements in the company's SEC filings. It is now my pleasure to turn the program over to Kindred Bio's CEO Richard Chin Dr. Chin. Please proceed.
Thank you operator, good afternoon, and welcome to our first quarter 2021 financial results call.
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 said previously that we expect 2021 to be a banner year, and it's certainly turning out to be that way.
We announced recently that we have developed a long acting IL 31 antibody that lasts up to three times longer than our normal canine antibody.
This is one of the most important announcements in the history of our Corporation.
This means that the antibody could potentially be administered three times less frequently than a typical antibody or potentially every three to six months.
Our stand the standard dog antibody has a half life of 10 days or so approximately which is why it's usually given every month or two or long acting antibody has a half life of up to about 30 days.
This technology also allows us to reduce cost of goods to flow with one third of a typical antibody rivaling the cost of goods for small molecules.
Even better this new antibody is based on turn out that map.
And the binding part of the molecule that binds to the IL 31.
Has not been changed.
This means that we already know that the molecule works.
And works well for atopic dermatitis.
And we can proceed for pivotal study with very little additional work because we can rely on the turnover that map pilot studies.
Our goal is to initiate the efficacy pivotal study as soon as end of this year.
This is really important news because the duration of action is a key driver of market share in this space. According to the information that we have.
Simply put the antibody program.
Simply put the antibody, it's likely to take a substantial portion of the market share and very possibly a dominant share.
So what we have is a molecule that's highly likely to work that as a duration of action advantage that has a cost of goods a tad tissue, we believe and which targets a market that is at least a billion dollars a year and growing.
Now this is a great technology on a major breakthrough and it's a very complicated and difficult technology to develop.
If you don't know exactly what you're doing and if you don't understand how every single atom.
In the antibody molecule works you could spend years on year, its trying literally trillions of different modifications and not getting get anywhere.
And you on our CSO and his team is world class and it's because of them that we've been able to achieve this so quickly.
That's on our site I'll also note that veterinary antibodies are in many ways more difficult than human antibodies to develop.
There are a lot more that's unknown and the reagents and the contract organizations that exist for human antibody development tip.
Typically do not exist for.
Veterinary antibody.
We have built on an organization that can now on a very consistent basis yield high quality antibodies high producing cell lines and consistent manufacturing.
We plan to develop both the regular and long version of the IL 31 antibody.
This is a huge market and there will likely be demand for both acute and chronic versions of the product. There was some acute indications like three bites are a seasonal seasonal allergies for their customer may want to on your pay for one or two months on therapy for example.
Turning to the turn of events Mab pivotal study the enrollment has been slow because we'd been required by the USDA to dermatology sites on most dogs, we need to enroll are seen a generalist sites. We still expect 12 to 18 months from started this study to completion, but it may be towards the longer end of that.
It's still too early to give a more definitive timeline since we just brought on some additional sites and will likely.
Continued to add more.
As previously noted we believe we have one of the broadest and most advanced dermatitis pipelines in the industry, including several molecules that we have not yet disclosed.
Now in addition to this exciting exciting announcement about the long acting IL 31 antibody. We also announced that we have on acceptance from the USDA for the prophylaxis efficacy study for the parvovirus antibody.
On acceptance is the term that USDA uses when it has finished their review and has found it satisfactory and sufficient to support an approval for efficacy data for prophylaxis has been approved and the USDA has approved a prophylaxis indication.
Of course in addition to that we still need approvals for the safety and the manufacturing before we got the final approval.
We still expect the treatment study to read out soon and assuming that it is positive we will receive approval of both indications.
The other programs are on track and we are happy with the progress so far.
Turning to Merit test it.
As Wendy will discuss the sales for this drug has been on a rapid upward trajectory and we're extremely happy about the great job that our partner that credit is doing.
U S mirror test sales to veterinary customers continues to grow and we're 60% higher in March of this year compared to April of 'twenty 'twenty when that crop for took over the commercialization of the product.
This highlights our partnership model and also reinforces that Veritas is on its way to becoming a very successful drug.
On the contract manufacturing side, we have additional potential clients were talking with right now there is a severe backlog of manufacturing.
Capacity right now as I noted before.
In addition, there is a severe shortage of manufacturing supplies.
And as Wendy will discuss this maybe pushed back our revenue from back start, but since it's a take or pay contract we will be see that revenue eventually.
No.
In the midst of this manufacturing capacity shortage, we were very lucky to be.
<unk> of having ample capacity on.
Plant has been designed to hold up to eight bioreactors once its fully built out.
And with the 4000 liter reactor is now being available.
Has maximum capacity of 32000 liters, which is quite substantial and each reactor can produce up to 24 batches of year and as you may know the market price for each batch, which has been going up it can be several million dollars.
We have also had multiple successful manufacturing campaigns with both our products and with customers' product and hence I should note it's not.
Easy to consistently manufacture biologics product, so we're very happy with that.
We also have Pete that we've raised significant additional capital through the ATM, which now extends to cash runway to end of 2020 three.
This will allow us to get.
Two approval not just IL 31, but I'll for are as well and possibly.
The long acting IL 31.
The bulk of the ATM was through block sales to very highly regarded blue chip investors and we're very pleased to have their support.
We're not utilizing the ATM currently and don't expect to utilize a small amount that's remaining in the foreseeable future.
To summarize we have three major drivers of value at Kindred bio number one products on pipeline number two IP and platform technologies and number three manufacturing and C. D M on business.
On the product side, we have several potential blockbusters, each one of which could generate hundreds of millions of dollars.
In sales every year and at least one of which has the potential to become the market leader and determined tightest space.
The IP, including behalf place technology is we believe a very valuable set of assets and the value will continue to grow at the role of biologics in the veterinary space growth.
And those of you who followed the C. D. On most space will appreciate the value of the contract manufacturing business that we're building.
The net takeaways are that we're very well positioned in terms of assets strategic position and cash runway.
We're very excited about our future with that I will turn the call over to Wendy for.
For a review of our first quarter financials.
Thanks Richard.
We further strengthened our capital position in the first quarter with proceeds from our ATM facility prolonging runway and providing further resources to guide our late stage biologics programs through the final stages of development.
With a streamlined expense structure in place.
Funds will extend our cash runway through the end of 2023.
As Richard noted we are also very pleased with the performance up there is cash in the quarter on.
Near tripling of royalty revenues on a sequential basis underscores the growth.
Growth trajectory of this drought and our partnership based approach to commercialization.
Turning to our financial results for the first quarter, we reported a net loss of $9 7 million or <unk> 24 cents per share compared to a net loss of $22 8 million or 58 cents per share for the same period in 2020.
The variance is primarily due to the elimination of all commercial organization as we rely on a partnership focused model and further prioritization on.
Our late stage biologics programs, but dogs and cats.
We recorded net product revenues of 227000, plus I better in the first quarter.
Compared with 603 in net product revenue was for memory test in the year ago period.
As a reminder, deca was granted exclusive marketing sales and distribution rights to <unk> in the U S on Canada, and the first quarter product revenue reflects excess inventory sold to that crowd.
So I'm on a sales in the U S have been consistent after a soft launch by tetra amidst the transition in sales from kindred bio to Deca.
With in person meetings between deck with sales personnel and back from the Orange starting to occur as the pandemic isolation is resolving sales.
Sales conversations are expected to become more frequent in the coming months and the opportunities to promote that matter should likewise increase.
The launch of since I'm on it in Canada is being planned and it's expected to occur sometime in 2021.
Royalty revenues rose from 122000 in the fourth quarter to 326000 in the first quarter of 2021.
The strong quarterly result reflects continued growth in U S sales.
Along side the initial contribution from launch of myriad tests in the EU.
On February four with sales now to over 25 countries.
In addition, the manufacturer on <unk> oral vaccine candidate for COVID-19 drove contract manufacturing revenue of $1 8 million for the first quarter based on the percentage completion of specific milestones.
Due to recent disruptions in the bio manufacturing supply chain.
Lead times for certain supplies have been lengthening so.
There is the possibility that up to half of the $25 million agreement will be recognized in 2022.
Keep in mind. This is a take or pay contract. So the timing of receipts should not affect our cash runway.
The cost of product revenue total 207000 in the first quarter 2021, compared to $3 6 million in the same period in 2020.
Which included a 3.5 million inventory write up on memory test the cost of contract manufacturing revenue, which consisted primarily of the cost of direct material direct labor and overhead costs was 383000.
Research and development expenses for the quarter ended March 31 was $6 3 million compared to $8 9 million for the sake of it in 2020.
The $2 6 million.
Decrease was primarily due to lower costs across the board.
System with our decision to discontinue small molecule development in favor of late stage biologics programs.
Stock based compensation expense for the first quarter of 2021 what's the real point 4 million as compared to 0.6 million for the same period in 2020.
Selling general and administrative expenses declined to $4 7 million from $8 9 million in the year ago quarter for us.
Selecting the elimination of our companion animal sales force.
Stock based compensation expense was $2 1 million for the 2021 first quarter like this one 5 million in the year ago period.
As discussed we further strengthened our cash position in the first three months of the year as of March 31st we had $63 3 million in cash cash equivalents on investments compared with $59 9 million as of December 31st.
Net cash used in operating activities for the first quarter of 2021 what's approximately $9 four.
4 million, reflecting a smaller organizational structure and to a lesser degree the contribution of contract manufacturing revenue.
We also invested approximately 260000 and capital expenditures, mainly for the Kansas facility.
Cash used was upset by $13 7 million of net cash proceeds from the sale of securities in conjunction with an at market issuance sales agreement.
April we sold an additional $13 1 million of securities through the ATM. The proceeds will be reflected in the second quarter financial results.
Our projected full year operating expenditures remain unchanged at between $41 million to $43 million and we expect to invest approximately $2 9 million on capital expenditures 11 manufacturing equipment for our core biologics programs.
With the additional funds from the ATM facility, we have further extended our cash runway and now expect our cash cash equivalents on the investments we've made and proceeds from the memory test sales revenue from contract manufacturing and revenues in the form of royalties on partner.
Licensing to be sufficient to fund the current operating plan through the end of 'twenty two 'twenty three.
In closing, we look for what two important pipeline catalysts in the quarter ahead.
Half the operating runway in place to see key late stage programs through to approval.
We look forward to updating you on our progress next quarter I will now turn the call back over to Richard.
Thank you Wendy operator, we are ready for questions.
Certainly our first question comes from the line of Jon Block from Stifel. Your question. Please.
Hi, This is Trevor on for John Thanks for taking my questions, maybe just to start off on the parvovirus program the deal with <unk>.
You said that you may achieve up to $16 million in development milestones.
With the remainder of the potential milestones being related to sales, maybe just relating to 16 or should we be thinking about any of the development milestones coming through in 2021.
Or do you have any other.
They are sort of timing guidance that you could that you could help us out with there.
At this point, we're not providing guidance on the timing of those on milestones.
Okay got it thanks, maybe just on the IL four program you mentioned that in your preparations are underway for a pivotal study and I think you alluded to potential approval by the end of 2023.
Could you just talk a little bit about how you anticipate this study will look in terms of timeline end points and maybe in relation to your other atopic dermatitis programs. Thanks, Yeah. So what we said is that the ideal for our program is about six months behind the regular IL 31 program.
And most likely the design will be similar to this.
Study design will be similar to IL 31, we're still discussing.
The specifics with the.
U S T a.
Great. Thank you.
Thank you. Our next question comes from the line of Ben Haner from allegiance cap Global your question. Please.
Good afternoon, guys. Thanks for taking my questions.
Just first for me on the.
IL 31.
Molecules will turn on that man and kind of 039.
It sounds like the half life extension.
Really opens up a.
Some opportunities for you there in terms of a choice between the vet and the pet owner of how to dose.
Zoom Mobley.
Having now longer option would kind of blunt any competitive impact from.
Slide Oh point, because if you're if you're going to dose the first dose with on IL 31 antibody. The civil works you would.
Does turn on that path and then essentially switched to kind of zero three non you wouldn't go from Sino point to kind of 039. If that was your intention I would think I mean is that a fair read on how you view it competitively yes.
Yes, we think that it's likely we think the bulk of the market will go to the long acting for a shot maybe.
Maybe two thirds of the market on.
More will go out to the long acting version, but we do think that there will be.
On the market for the shorter acting version the normal version some of them will be for acute indications other will be for a trial as you say, but certainly most medical professionals with a preferred to switch from one version of a product to another and completely different product.
We believe.
Okay that makes sense.
Then just thinking about the up to three fold longer half life the up too.
How much variance is there is in that I mean is it you know some dogs, maybe alas a month on a half on some of the last you know.
On the threefold longer or is it a is it pretty tight within a range.
Depending on.
I suppose depending on the breed.
Yeah. So there is variability from Doctor dog.
With Oh any antibody, we believe in the way that we're going to administer our.
Antibodies that we will likely get consistent a three fold increase and oh like dog that might normally need to be retreated every month.
Probably we'll go to every three months in between treatments a dog that me.
Need the regular version every two months.
Oh, well probably go to every six months, but.
We will need to do the additional studies before for sure.
Okay that makes sense on is there are there plans to apply this to IL for our as well.
So we haven't announced what other molecules were playing this to however.
For almost any chronic disease increase in half life would be an advantage and for.
Any disease with a chronic or acute threefold reduction in cost of goods for veterinary could build drugs yes.
Yes, it would be very compelling.
Okay got it and then lastly for me you called out in the R&D savings are a good portion of that being attributed to cc in small molecule development.
I guess the question is how much small molecule development, where are you pursuing a year ago.
So.
Before we had the strategic realignment we were.
Spending probably about 40% of our resources on small molecule.
Okay.
Got it that's it for me Thanks, a lot guys sure. Thanks Ben.
Thank you on next question comes from the line of Philips GE for Sun from Barclays. Your question. Please.
Yeah.
Alright.
Good afternoon, Richard and thanks for the questions couple.
Couple of things firstly with.
With the acceptance of the prophylaxis day out far from the borrowers mob can you summarize where you stand currently with both the prophylactic indications on the on the therapeutic indication and any updated thoughts around this.
Secondly, also I see that you have any why is the agreement with the with.
<unk>.
But can you just published today can you highlight if there is any major changes from the faster they made on the tanker.
Sure. So we have two indications we're pursuing they are independent in terms of the indication itself, but they shared the same manufacturing. So both of those indications are the timelines are driven.
By the manufacturing portion.
And.
We basically are done with the efficacy portion of the prophylaxis. We are in the midst of the treatment study, which we still expect to read out this quarter.
If the treatment indication is positive then what do we get the manufacturing section of proof and of course, the safety, but manufacturing is the rate limiting factor on Wednesday.
Manufacturing section is approved then we would get both indications.
If the treatment indication study does not work for some reason, which we think is unlikely then we would still get the approval for the prophylaxis indication.
Oh and the second part the.
We filed the agreement that was filed with the line called he's basically.
More detailed version of the initial.
Letter of intent that we signed so it doesn't change any of the major terms it just feels into detail.
Got it thank you.
Thank you. Our next question comes from the line of Brandon Folkes from Cantor Fitzgerald. Your question. Please.
Alright, Thanks for taking my questions and congratulations on all the progress.
The first one being on the long acting IL 31 can you just walk us through the process from here.
True to the initiation of a pivotal program.
Great limiting step for when we should expect that.
Maybe just quickly on the USDA.
Any color in terms of how they review timeline for people how do you spend enough time on but how the reviews have been coming out for the USDA, obviously, the human side seem to range at the FDA.
Yes.
Any color there would be great and then losses.
On vaccines.
We saw you.
You called out sort of some of the challenges they called out a few challenges there one a day.
On the supply as much yourself, but.
Yes, just on that.
Is it a possibility for expansion on congrats on a contract done here once a day resolve some of the issues.
Hi.
Oh, I guess, you did touch on capacity, but yeah any color on capacity and taking that on or would you look to diversify you'll see day my business instead of just having one true.
Sure.
Very large Pat Thank you for sure and please let me know if I'm not answering the question in the way you.
You meant that so the long acting out of 30 on the beauty of the long acting IL 31 is that.
For the entire molecule. The same has the parent molecule. So that means all the safety data and all the pilot efficacy data.
Apply the only thing that's different is the half life. So from a clinical standpoint, where essentially ready to start the study.
The manufacturing is what is driving the timeline at this point and if all goes well we expect to have the.
Efficacy clinical material ready by the end of this year now Theres always risk. So that's why we haven't said definitively. Both started this year. We have what we've said is that our goal is to try to buy end of this year. So it really it will only be about one year behind the regular pressure.
In terms of the second question I believe you were asking about review timelines for the U S. T. A N D. S. T. A debate these timelines that the USDA seems to be a longer than typical probably due to COVID-19 and.
And we factored that into our <unk>.
I'm line.
F T. A we have not been interacting with the FDA very much at this point because we don't have to.
Small molecule portfolio anymore, So I can't.
Yeah.
Provide much color on that and in terms of back sorry, I believe you were asking yes, there might be additional business from them back sorry.
So we.
We haven't.
Agreed to any additional batches typically though once you have a partnership between a.
Sponsor and a contract manufacturer generally the.
Concert likes to keep them manufacturing.
With the same contract manufacturer.
Transfer of.
The technology.
Takes a fair amount of time and often there are difficulties in transferring.
Transferring it to it.
Current manufacturing facility.
So if their clinical studies are successful then I think we would be in a good position to get additional business, but at this point that's not.
Something that you know is under discussion we do.
I do want to diversify our business. However, we can do that even if we.
We expanded our agreement with that side.
Because as I mentioned, we have the ability to go up to 32000 liters.
Capacity and that's a that's a lot of capacity.
Great then you're on to the market.
I appreciate it.
Thank you. Our next question comes from the line of Sean Lee from H C. Wainwright Your question. Please.
Good afternoon, guys and thanks for taking my question.
Maybe a little bit follow up on the contract manufacturing side, you mentioned the financing facility with capacity for up to 32000 leaders I was just wondering how much of that.
Much capacity do you still have right now for external contracts.
Uh huh.
Could you provide some color on.
Maybe on the timing on the backlog, where you said earlier in terms of manufacturing capacity.
Oh can you repeat the second part of that question.
Earlier during the prepared remarks, you mentioned theres been a backlog in terms of capacity. So I was wondering Oh do you have any.
Insight as to the timing of that for sure. So so there's backlog on cross industry in terms of capacity because.
Most contract manufacturers are completely full so there's a two year wait or sometimes longer to get a slot, which is what puts us in oh.
Good position and we're in that position because.
Most companies build a plant and they need let's say.
30000 square feet or 50000 square feet. They build a building of 30000 square feet or 50000 square feet.
We're looking that we purchased a plant that was 180000 square feet for.
Very very.
Low price.
And we were able to design and build.
The 60000 square feet, we're using.
With expansion built in so their space. That's built out so it's designed to have two upstream suites to downstream. So we tend to fill and finish line. So it's all ready to go so very very quickly we can.
Expand from the current two bioreactors to eight bioreactor. It. So that's very very unusual if you're building from Greenfield you would not be.
Sales of extra space in the middle of the manufacturing plant Oh.
We have done so.
We currently have additional capacity and we could take on.
Additional manufacturing contracts you know a few tens of millions of dollars.
Manufacturing contracts before we needed to add additional Bioreactors and then once we added the additional Bioreactors then.
Take on hundreds of millions of dollars of additional business per year.
So we are we're in an unusual and fortunate.
Position.
Does that answer both.
Both parts of your question.
Yep.
Very helpful. Thank you.
My second question is on the top line extension technology, so with the positive PK results from the third.
Long acting on 31 antibody I was just wondering whether the company will plan to accelerate the development goes other locked antibodies since as you mentioned day offer.
It'd be pretty obvious competitive on commercial advantages, yes, so for almost all future antibodies, we plan to incorporate the technology because.
There were very few instances, where you want on a shorter half life.
And the.
On the veterinary space cost of goods is so important and biologics the regular acting.
Antibodies may still.
I'll put on.
More expensive to manufacture than small molecule sometimes significantly more.
Expensive, but our manufacturing.
Later and culture, such that for us, it's slightly more expensive, but once you get to the long acting versions than the Cogs start to look more like small molecule Cogs.
All that.
That becomes very very attractive and in the veterinary space cause really do matter.
Oh, great. Thanks for that that's all on Houska.
Thank you. Our next question comes from the line of David Westenburg from Guggenheim Securities. Your question. Please.
Hi, This is John on for Dave. Thanks for taking my question regarding <unk>, how do you feel about how it's being commercialized on how the partnership with Deca is progressing and has a link OS joined the category helped by that's getting the end markets on the other category. Thank you.
So I'm going to actually turn the question over to Katya She is managing our AR.
Our partnerships with.
That crop.
And it's also head of corporate development, so cuts or do you want to.
Seek to Sean.
So with regard to marriage has I think that decorous done an outstanding job since taking on that product as we know I did today monthly sales for clinics had increased about 60% since the launch which is a pretty phenomenal results in 12 months during a pandemic when sales and technical teams.
Times when measured in their ability to access hospitals.
And then we're pleased with the initial results on contribution from the EU launch and we expect that to further accelerate the ramp and the peak sales potential for the product and sorry. Your second question could you repeat that.
Yeah would you say that a line coast, having gotten into the category helped you by helping to educate veterinarians on.
On the space.
I think yeah, I think that they see this as a category creator on you're intending to invest considerable resources.
<unk> with this best in class product and obviously I don't need to Nick how are you wanting price international rates they have on display that marketing and technical expertise in therapeutic for that.
It seems is second to none and we're very pleased in general terms. That's how the partnership is proceeding as Richard mentioned not only in Richard execute at the final call license agreements and all the launch preparation for family underway. So it's clear that they're very excited about this program and we are devoting a lot of original losses to launch on Jamba drive.
Success.
Okay. Thank you.
Thank you. This does conclude the question and answer session of today's program I'd like to hand, the program back to Dr. Richard Chin for any further remarks.
Thank you operator, I'd like to thank our listeners for your support cash we continue to advance our products and our promising pipeline.
Thank you ladies and gentlemen is your participation in today's conference. This does conclude the program you may now disconnect good day.
Okay.
Yes.
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