Q1 2021 KemPharm Inc Earnings Call
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Ladies and gentlemen, thank you for standing by and welcome to come from first quarter 2020. Other results conference call. At this time all participants are in a listen only mode.
After the Speakers' presentation, there'll be a question and answer session.
Please be advised that today's conference may be recorded if you would call offer assistance. Please press Star then zero I would now like to hand, the conference over to your speaker host.
Jason Rando <unk> strategic advisors. Please go ahead.
Good afternoon. Thank you for joining our call today to discuss confirms first quarter 2021 financial and corporate results.
Before we begin I would like to remind our listeners that remarks made during this call may contain forward looking statements that involve risks and uncertainties that are subject to changes at any time, including but not limited to statements about came from expectations regarding future operating results.
Forward looking statements are made pursuant to the safe Harbor provisions of the federal Securities laws and represent management's current expectations.
Actual results may differ materially.
Kim from disclaims any obligation to update or revise its forward looking statements, except as required by law.
More complete information regarding forward looking statements risks and uncertainties can be found in <unk> filings with the SEC, which are available on <unk> website under the Investor Relations section.
Speaking on today's call will be Travis Mickle, <unk>, President and CEO and the Duane <unk> Clifton CFO.
Following the remarks there'll be a question and answer session, which will include responses to questions that were submitted during the past week.
With that it's my pleasure to introduce Travis.
Thanks, Jason and thanks, everyone for joining us today.
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As most of you know and I'm sure all of you.
Joining the call are aware the FDA approved <unk> back in March 2nd certainly one of our large highlights here from the first quarter.
This year.
We do expect our partner corium to launch that product in the second half.
Presumably around the start of the school year, if all things go well.
We also announced during this quarter.
Number of different highlights, including an amendment.
That happened after the first quarter to the license agreement now eligible to receive up to $590 million in sales milestones and royalties on top of that debt.
Debt that go out to day length of the patents.
We also recently just announced that a sheer dexmethylphenidate, which is the prodrug in our stars.
<unk> received a schedule for classification.
The only methylphenidate product that has a schedule for actually the only methylphenidate product that's any different schedule than a scheduled too and I will actually walk through a little bit of those key differences in how the prescribed and handled.
The difference is there between those two classifications.
Just to say, it's fairly meaningful for a patient physician and pharmacist and we believe it provides a key differentiator for <unk> as well as potentially keeping core 84, and our own product K P 87 nine.
Lithuania is here to discuss all the great things he's accomplished since the beginning of the year. So I won't take away much of his thunder there.
Of course, you know the big Big ones been complete transformation of our financial situation.
Listing on the NASDAQ repaying, all the debt and putting us in a great position.
To amend the agreement and be able to invest in our own future again as well as have ample capital to do what we need to do strategically and with the organization moving forward.
And then beyond the stars were actually are getting very excited now about the initiation of a clinical.
Clinical trial and mid this year on keeping 879 that is our lead product for the treatment of stimulant use disorder stimulant addiction.
Extremely exciting product a unique opportunity there.
Still are working under the expanded services agreement with Corium and we continue to watch our with our partner K VK Tech.
And the launch of <unk> and as soon as we're able we will give more details on how that is.
It's progressing.
Yeah.
Turning now in more details of the historic approval.
You know certainly this was a transformative event for the organization our second product approval, a really a huge opportunity when you think about the product itself and its differentiation in the marketplace.
When you look at our previous commercial forecast are really just based on things like efficacy.
And safety really being very similar in safety to two other products and what we were able to achieve with our studies as well as in negotiations with the agency.
We were able to include benefits around the administration of the product heightened weight changes that showed no difference.
From a placebo or from the the typical a heightened weight growth you would expect.
Pharma kinetic kinetic differences as well as the efficacy data that we've discussed all along it was those key differentiations that led us to.
Revise our own commercial models of course, working with our corium to do so.
And realized we had a great opportunity to amend the agreement and possibly make our additional.
Investment in the near term for the launch of the product and ultimately receive more upside as we believe it will be quite successful in the near term.
So to that end.
Moving on to the amendment itself.
We were able to actually.
Work with the G. P C team to renegotiate and increase the regulatory and sales milestones.
From what they were at $468 million.
Up to $590 million you can see that the substantial increase it also added a top tier sales royalty debt is higher than the previous are mid twenty's level and increase that royalty rate throughout the life of the patents.
We received our $10 million a regulatory milestone for the approval of our stars and now of course now with the scheduling.
We're eligible for that other $10 million debt I'm sure will receive just on time.
From our partner there.
There was for additional sales based milestones that were added three of those are relatively near term and weren't present before they're at the lower tiers.
So between zero and a kind of a mid level. We think those are very achievable in the next few years and something that we believe allows as well our partner to reinvest in manufacturing and clinical studies.
That will help and help the product overall.
So overall, we're very excited about that amendment, we believe there is a.
A great opportunity for that product and a great opportunity to work with corium and G. P C.
<unk> has its value.
Turning to the startup commercialization I've mentioned much of this already.
I did touch on it very briefly the additional manufacturing of course as you would project. If you think there's going to be more.
Sales, you're going to need more capacity. So that's something that we are working with corium diligently to prepare for the launch as well as prepare for the future there.
In addition to that it was disclosed publicly in the summary basis of approval there's requirements for pediatric.
Clinical studies, mainly focused on preschoolers. So of course, we're working with corium and their team are.
To design and conduct those trials are the timelines are very short.
Surprisingly so from the F. T. Eight so we're working to get those studies conducted I do believe that the addition of a four to five year old indication would be of more value. So you can see in part why we were working with G. P. C to amend the agreement with the additional cost of those studies and the additional value they can derive once those.
These are on the label.
Certain have heard just just anecdotally from our partner.
Discussions with physicians and payers have gone very well and there's initial receptivity by Payors.
This product is differentiated.
Certainly it would be something that Ah patients with would want to see.
From the scheduling of course really does add to that Payors are certainly see that as an important differentiation.
But certainly physicians and patients would as well.
Remember, 70% of the active ingredient in our stores is a S. T X. So the product itself is still scheduled to but ultimately it will be very prominently displayed on the label and the highlights of prescribing and the and abuse section section nine that this is a schedule for controlled substance.
As far as the project component and we believe that's a very straightforward and very much something that a salesperson can highlight.
For a physician.
Yeah.
So, let's just touch on the debt.
Schedule for classification, and a little more detail.
The feedback from the DEA was very.
Very much like what are they pass along from the M. A.
F D a.
Is that S. T X really didn't show any sort of abuse liability above that of phentermine and we know the results of our studies did indicate that that in fact, you don't see a difference from.
From phentermine when taken orally in fact, it's actually at some doses even less.
And through other routes of abuse it was.
Either closer to placebo or certainly far less debt than that of methylphenidate and with that the FDA recommended to the day that this would be scheduled for and Luckily for us the F. D. A day excuse me followed suit and agreed and of course, we got the notification.
That it would be a schedule for API.
We believe that.
If we you know develop in and take J P. 879 forward that it's more than likely would also receive a schedule for classification and this could be a you know a huge benefit to a product that you are going to be giving to from someone who is addicted to stimulants someone that's trying to go through treatment now.
That's very difficult to abuse, and certainly less of usable than methylphenidate.
So let me just quickly highlight for you some of the differences are.
Key differences between our scheduled two product in our schedule for product certainly all the current methylphenidate products other than S. T X.
Schedule twos and this restriction is in place because of its potential for abuse.
Now with all other scheduled two products resells are not allowed and of course with our schedule for those are allowed.
The the longest script that you can receive force scheduled two is 30 days at.
At the same time, you get the same 30 day script as well as up to five refills skimming. Your six month total timeframe that you can receive refills.
And prescriptions for C. Four product. So imagine this now an application for a Oh K P 879.
The prescriptions also easier to deliver that means it can go to the pharmacy phone fax written or electronic well in the case of a C to a it has to be written or electronic only theres no. Other mechanism you cant call the physician and get them to change anything.
With a C too.
And of course, similar abuse potential as phentermine Phentermine is also a schedule for product. So I mentioned that product before and you can see now we've been classified.
Similar to that type of product.
Some things that we see in addition to just K P. 879, we have contemplated and are considering other S T X containing products.
At May also receive a C for indication.
With those particular products, so that could be a tremendous value and an advantage for us moving forward. In addition, our unfettered mean based pro drugs. So that's been referred to escape. The 922, they have similar properties as SPX. So we're you know we're we're certainly excited about the potential there.
Those could also receive a lower schedule if those candidates are advanced and approved.
So with that I think I've, given a thorough overview of where we sit through.
The scheduling decision and I'll turn it over to Lithuania to discuss our financials.
Thank you Travis.
Certainly Q1 was a culmination of a lot of work that's gone into our financial restructuring.
I'm very thankful to say that we've come out on the other side very strong as a result the.
A series of transactions, obviously, we've discussed this with you before so I won't go into great detail, but of course, we regained our listing on the NASDAQ capital market.
We were able to eliminate all of the company's debt, we added new capital to propel growth and really create flexibility that we did not have before.
It's important to note here I added a bullet here.
Regarding the incremental capital that continues to flow in as the warrants that were generated from the January transactions are exercised.
And we don't really predict when that comes in but those warrants have a five year life.
How to strike price in the range from 636, all the way up to 8.125 per share and so those come in from time to time as is the holders decide to exercise, but it is an incremental source of capital which is already included in the fully diluted share counts.
With all of this of course, it provides greater operating and strategic flexibility as we bring.
Bringing 879 into development and then of course also evaluate other ways in which we can deploy the capital to create long term value for shareholders.
Looking specifically at the results for Q1, we reported revenue of $12 $1 million comprised primarily of the milestone payment of $10 million related to the Starz approval in March and then we had services revenue during the quarter of $2 1 million under the consulting.
[noise] arrangements, we have with corium.
We ended up reporting a net loss of $10 3 million.
For the quarter or 54 cents per basic and diluted share.
Which is more of a loss other than the <unk>.
Q1 of 2020, but it's important to note here that.
A substantial noncash loss was recognized based on the extinguishment of the debt. So the cost of extinguishing the debt there were certain assets on the balance sheet related to the accounting and that extinguishment was actually a noncash loss of $16 9 million. So if you look at the next line.
Operating income then was actually $7 million during the quarter or would have been 36 per basic and diluted share.
That just gives you a sense of are we really did have a good quarter, but it's a hidden a bit by this noncash item.
R&D expenses were modestly up during the quarter as we began some activity related to 87, nine and then G&A expenses Hum.
<unk> decreased compared to Q1 of the prior year, continuing with our attempts to be very diligently managing our expenses.
The balance sheet as of March 31, we had total cash of $76 million, obviously, a large increase of $71 seven compared to the prior quarter based on the restructuring that was completed.
This does not include the $10 million for the approval because that money was paid after the end of the quarter and then also the additional $10 million that we have now earned as a result of the DEA scheduling is also not included we have not yet received it but we will receive that.
30 days after the decision. So you can assume we'll get it around June 7th.
The total debt, which was still on the books as of December 31st as I mentioned has been fully extinguished.
And so we're really glad to be in a position now where we have no debt.
And then just a quick update as of March 31st total common shares outstanding was 28 point almost $28 5 million shares fully diluted is around $38 4 million shares and there is no preferred stock outstanding as of March 31.
And so with that I'll turn it back to you Travis and thanks for doing so.
So just to kind of wrap up here and look ahead.
<unk>, we continue to actively support the Koreans commercial efforts.
You can imagine those are quite substantial since receiving approval back in March the work that we provide and is included in the manufacturing support scientific affairs clinical studies.
Everything that Oh, I've already sort of touched on during the call. So much much of what our focus is right. Now is is really being that our scientific and manufacturing support arm of corium as we prepare for that launch and of course, that's that's critical for the value.
The product and you only get one chance to launch correct correctly.
Once that product is launched we do expect royalties and sales to continue in from 'twenty to 'twenty two and beyond.
For K P 879, as I mentioned before.
Looking forward to the start of our clinical trial. There in mid 2021, we will provide more details and timing of potential study wrap ups and additional studies.
As a as we were able to get that study started it's a little lengthier than our traditional sort of first studies. So well, while we are excited about it starting and we want to make sure that we provide you with our best guidance at.
And be able to maintain when the other studies could start afterwards.
Yes, so Duane just mentioned we're in a great cash position, it's only getting better as we hit milestones here.
And the <unk> related milestones you know just just make it better.
And then just as you may recall of course, the services agreement, we have with corium adds additional revenue. It also is a you know.
Has a fair amount of distraction associated with it so while we are work with our partner.
On the launch of a startup and some of their internal development work.
We're also in parallel.
We are prioritizing our own programs and trying to figure out exactly where our pipeline pits as well as other value creating opportunities.
And all of this as well with the support and work with our partner Candy K Tec on their launch of App of debt. So certainly a very exciting time transformative events behind us nothing but a great opportunities in front of us, we're going to stick with our previous sort of.
<unk> for them too.
To this call we have received a number of inbound questions, we prioritize them and try to collate them as best as possible and we're gonna answer those now as they have been provided.
Duane if you want to read off the question and then you and I can decide who and how to answer it.
Of course, thank you to everyone who has sent in questions. We hope you find this format helpful.
Okay. So the first question, how could kps 879 ever failed to receive a schedule for DEA scheduling.
If approved.
Yeah.
We just we looked at this one I don't imagine there's any mechanism in which it. It wouldnt you know keep the designation it already has.
It is a pure SPX containing product, which has already been determined to be scheduled for that all being said I think we all recognize there is significant risk in any regulatory body.
T. A NDA included so I think you know very high probability.
But you know I.
I don't I can't imagine you can't imagine but at.
At the same time, I think it's very very unlikely that it that it would be anything different.
Okay. Great. The next question, we received is related to the commercialization of the scars can.
Can you give us an example of the sales pitch that might be used to detail those scars well counter detailing close competitors.
Well of course corium is the marketing partner and we are really.
I'm not allowed really to say much about what they're doing they do pass things along that they they give us permission to pass along to our.
Shareholders and investors.
At the same time.
We've touched on it all the highlights then those are the highlights that are that are differentiated.
Above the other products that are out there I think the C. Four is a big differentiation its obvious we are.
The height and weight, we have the administration and we have the efficacy. So you have all those different advantages that'd be instead, we didn't do head to head comparative trials. So the counter detailing portion of that.
You know physicians will just have to know and have known withdrew their clinical experience. How this product is now different than those other products.
The next few questions actually we received several related to clinical and regulatory timelines for both K P 87, nine and for K P. Eight excuse me J P $4 84.
You already touched on the 87 nine maybe we can speak a little bit to 484, yeah.
Yeah, Kate before 84 was licensed under the agreement by G. P C.
It's entirely up to them, whether or not and what the timelines would look like for the development of that product.
We have provided our kind of input and you know what studies would be needed and so forth at debt you would expect at the same time, there you know vigorously working on the launch of <unk>.
They're also working now on adding a potential preschool indication onto this tourist label, we think there's a lot more value right now to pushing them to help with that process.
As soon as we hear from them and as soon as they make their decision I will pass along any updates on key before 84.
The next question is related to really the treatment of stimulant use disorder.
And this is this person.
Sort of provided a comparison of treatment option, there's a number of treatment options for opioid abusers, while at least they were not able to find any.
Similar or any treatment options for stimulant abuse and so just curious about how we view that are there in fact, any other competitors or products that can be used.
Our other indicated or otherwise.
And then related to that.
Could we speak to the potential to use K P 87 nine.
Outside of just treating stimulant use disorder.
Well you know the.
The question about is there anything available I think that's that's a good question thinking about <unk>.
Why we chose stimulant use disorder. There is right now nothing available everything is more a kind of just to help with some of the symptoms and not really treat the disease itself not be able to help as the opioid.
Addax with those options that they have with buprenorphine methadone and so forth those aren't available.
For stimulant use since it's a completely different mechanism.
Yes.
If you're currently giving antidepressants and other other sort of products.
It would be really beneficial to a to a patient certainly for a physician to have a lower scheduled.
Safer product that could now be available for them to use to treat a statement use disorder, which would include meth methamphetamine cocaine and other stimulants.
And then as far as the potential outside I mean, theres been a lot of work that's been done with methylphenidate in general, but you know this this does provide us with a unique opportunity to explore.
I'm looking at now what you see for looking at the properties of just S T X and saying well what about other indications and we have a number of patent applications have already been published patents that have been issued looking at things like binge eating disorder Hum shift work disorders, So where do you have.
You know overnight shifts and you change your hours repeatedly.
Anything with excessive daytime sleepiness associated with narcolepsy and other things all of those.
We're always theoretical but certainly now are something that we evaluate in more detail.
Yeah.
Okay. The next question is one I would probably take because it's related to them.
I guess here's the question has the company updated its budget or its operating forecast for development of its products and programs.
And at what rate of the company expect to utilize the proceeds from the recent capital transactions. So I'll take this one and you'll notice in today's presentation and also in the press release that we didn't really provide a cash runway.
<unk> and.
And a lot of ways our.
Our current burn rate.
How long does it how many quarters to $76 million last if your burn rate is for between one and one and a half million dollars per quarter. So it seems like a sort of a strange question really.
The thing about it is we currently have a relatively low R&D spend rate.
And so.
That's very important to us is that we take some time right now to not only look at the programs. We have internally, but also other opportunities externally and as we evaluate these opportunities we hope to put together.
An updated plan for how we might consider deploying the capital. So that we can create long term value for shareholders. So that's a process that we're always looking at but certainly.
We're looking at carefully right now together with our board and so but with that said, we certainly have enough cash to.
Carried through the development and continue what we're doing with J P 87, nine and as we have updates or other additions to the pipeline or whatever decisions come out of the next several months. We'll continue to update you I will say at the moment, though our burn rate continues to be around one to one and a half million until we make some judgments around incremental.
<unk> investment in R&D.
Okay and the next question.
I guess this investor was looking for ways to look at the potential cash flows that might come from the historic license agreement that we have.
And I guess.
By a few other investors, there's some confusion I suppose around when we talk about $590 million of sales milestones what does that mean, so I'll just try to review that again and try to answer the question.
Whenever we speak to $590 million. These are potential milestone payments related that are triggered by attaining certain regulatory or sales level milestones. So that would be specific sales tiers. For example that if you obtain that annual sales level and you receive.
This milestone payment. So 590 is the sum of all of those regulatory and sales milestone payments. Okay. Now the underlying sales tiers, though go potentially higher than $590 million that is not the peak sales that is just the sum of those milestone payments potential.
With that said then.
Underlying that then was also a question that says do royalties stop when you get to $590 million in sales and so.
Hopefully that's clear now that the answer is no. This is a royalty based on net sales and so we receive a royalty at a certain percentage on the first dollar of sales all the way to the last dollar of sales when the patents expire and actually if you read the details of the agreement we receive a re.
<unk> royalty for up to two years after the exploration of the last patent.
We've disclosed before the patents run out to 2037 currently.
There's is it possible we could maybe have other patents added that AD time, I suppose it's possible, but we would be receiving royalties on net sales throughout the entire life of the product up until until that time. So hopefully that kind of explains then you can see there's sort of two cash.
Cash flows the cash flows from achieving these milestone payments and then there's cash flow that comes from the royalties.
So I hope that helps answer that question, but if theres a continuing question. We would encourage you to send that in.
And looking at the list Travis actually this is the last question that we can answer today.
Alright, well again I appreciate everybody's time.
Hopefully you can hear from us where.
Diligently working to assess.
Everything that's going on here at Kim Farm, we want to make sure that we take all the right next steps do everything that we can possibly do to add the most value as.
As well as make sure that we're continuing to address the shareholders' needs.
So while we while we just received word.
Around the DEA scheduling and you can imagine debt that's created a whole new set of options and a whole new set of opportunities. So while we evaluate everything we really appreciate your patience and we will as always continue to provide meaningful and timely updates.
Never possible, especially as it relates to the value creation, we hope to achieve here at the company. So with that again I would like to thank you for your time and and I appreciate you joining.
Thanks, everyone.
Ladies and gentlemen that does conclude our conference for today. Thank you for your participation you may now disconnect.
Okay.
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Hum.
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