Q2 2021 KemPharm Inc Earnings Call

Yeah.

Good day, and thank you for standing by welcome to the Chem Farms' second quarter 2021 results conference call.

At this time all participants are in a listen only mode. If you require any further assistance. Please press star zero I'd now like to hand, the conference over to your speaker today, Mr. Randall with Tiberon straight strategic advisors. Please go ahead.

Good afternoon, and thank you for joining our call today to discuss Kemp Pharm second 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 and are subject to changes at any time, including but not limited to statements about <unk> 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.

<unk> 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 Kim first bonds with the SEC.

What's your 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 their 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 this afternoon.

With some recent highlights many of you that are already aware of most of these but I would like to run through them very briefly.

Most of you are aware that our star S. Our lead ADHD product that was approved back in March was launched commercially on July 21st.

Very exciting milestone for us.

Our partner Corium announced that a launch and.

We are excited to see how that progresses we.

We do expect to see royalties and sales milestones in 2022 and beyond but as you'll hear in a further update that is probably the extent of any sort of projection that we can give at this time.

Just as you may recall, the royalty rates on U S sales go from the high single digits up to the mid twenties.

And our <unk> patents run until 'twenty 37, so sitting here in 2021 with a product that just launched now we have a 16 year product life.

Just a tremendous opportunity in front of us for Istar as we.

We also earned in the second quarter.

Received notice that the a D a.

It did take the recommendation from the FDA as to schedule S. T extra sheer dexmethylphenidate is the schedule for controlled substance.

Methylphenidate products right now our schedule to this is the only methylphenidate containing product that has a schedule for and it's remarkably beneficial. It means it has a lower potential for abuse.

When compared to other D methylphenidate products and in fact lower than than a schedule III product.

And it's a key differentiator for STAAR is.

Not only that it's also a key value proposition for our other S. T X based product candidates.

I'd be happy to report an endless Duane will give us all the great details, we have a healthy balance sheet.

We also have a net income so he'll get to talk about that shortly.

Of course, so that was the combination of the warrant transaction, which I'll explain in more detail as well as the regulatory milestones received in the second quarter.

And then we are excited to think about the future and especially beyond the star is a you know it's great to have sales rolling in and royalties potential but at the same time S. TX holds a many different avenues for us and we do expect to have some clinical data prior to year end with S. T X.

It's something that I will detail more in just in just a moment.

K P. K Tec did pass along that they are preparing to expand the sure med collaboration for <unk> I know that's not a word you hear very often from our mouse anymore, but certainly that's still ongoing.

They're expanding that collaboration known as perspectives and care into additional regions. So we'll be excited to hear about any updates that they pass along to us.

So moving on as I mentioned extensively the U S commercial launch for Starz is well underway.

We are excited about the product. So it was corium. If you have a chance. Please visit the website you can learn more about the product also some of the promotional and sales.

Sales based tactics that is corium misunder, taking for the product.

Primarily all around the label differentiation.

Related to our Srs. So if you remember or recall those various label elements include how the product is administered a it.

It can be taken with or without food. It can be opened up and sprinkled on apple sauce here.

Water there was no changes and heightened wait overtime that were clinically meaningful are the pharmacokinetics of the product is very smooth you Havent really peaked early in the morning, and then it tends to gradually decrease throughout the day and the efficacy data does show that that you have.

This very early onset through a long duration through the entirety of the day.

All of that combined with the fact that this product has 70% S. T X, which is also as I mentioned our control for controlled substance makes this a really a complete completely different type of product when we talk about methylphenidate and what is available today.

Corium did provide us some commercialization updates that we're going to pass along I will caution everyone. This is very early days in those particular instances it will be a slow road.

We have to we'll have to be patient to see how these types of products will launch.

You know, it's initially going to be a focused launch in just a few states with select prescribers and that's really due to a number of different factors.

And mainly I believe that's all around the fact that you don't have payer coverage in many cases large payers and a lot of payers will actually block the product from being reimbursed initially for it for about a six month period of time.

As seen by industry wide standards, so any new product it doesn't matter if it's a star is or something for blood pressure or something.

Something for oncology, it's going to see that initial N D. C block until a payer has a chance to review it and discuss with the company any potential contracts that need to be placed in front of it.

We have heard from corium that some of the payers have indicated some initial receptivity to a start it's just given its differentiation. Many times when you hear that feedback are payers.

Payers are worried that they're going to have to actually pay a large amount and would like to discuss contracting for the product.

And then we have heard from corium that that when payer access opens up.

When the current Covid environment opens up as well as as they're starting to get some initial velocity that that launch will expand it will become a national launch with more sales folks and I think this is a perfect strategy.

Don't oversell it don't have physicians write a bunch of scripts that don't get filled.

Because they get a stopped them at the payer side. So there they certainly know exactly what they're doing I think they have all the resources in place and we are excited to see them take this forward.

As you as you may be aware.

And based on that label, we did update our internal forecast and this really was the basis for the amendment that we did to the license agreement with Com App, which is an affiliate of GPC.

Back in April.

Moving on briefly here to the sheer decks or S T X opportunity.

Certainly there's a number of different features here and Ive rattled on and on about this the the C. Four.

Scheduling, but also.

It's the unique profile of the peer pro drug that provides us a real opportunity. So you have this this.

You know lower abuse ability potential as well as pharmacokinetic profile and the fact that you can't just swap it in for other methylphenidate gives us.

A unique chance to really capitalize on the molecule.

And so we recently initiated trial with SPX.

We did so under the keep the 87 nine and I'm not calling this product 879 for it for a very good reason is that this study itself was designed to tell us a lot more about SPX than just what it could do for us.

Stimulant use disorder.

So we're exploring the pharmacokinetics at high doses as well as the safety and some of the exploratory effects. So this would be like side effects related to abuse ability and or wakefulness side side side effects that may come with a methylphenidate product.

And.

Some of the reason why we haven't really announced the.

Initiation of the study primarily because I can't tell you exactly when it's going to and I heard everything from first quarter last year or next year to third quarter of this year and it's somewhere it's going to be somewhere in between that we really do believe it's going to be prior to year end, it's a difficult sort of trial to enroll for it we're looking at.

People with a history of stimulant use.

A significant stimulant abuse and almost to the point of addiction, and so we really need to keep those individuals', which they're not the most reliable individuals' from that perspective, we're going to use the clinical data from this study to decide what the future is for the program is it going to be primarily in stimulant use disorder.

Or is it going to be used for idiopathic hypersomnia. The product 10, 77 that we announced last year as a potential or others. There's a number of different other indications we want to pick the right. One that has the right market conditions as well as the best opportunity for that product to do well and one that won't cannibalize itself where do.

You can do a little bit too much with the same molecule.

So now that I've run through that I'm going to turn it over to Dwayne to provide you with a financial update.

Right.

Thank you Travis and good afternoon.

For Q2, 2021, we reported revenue of $12 million for this quarter, that's comprised of the $10 million milestone payment for the DEA scheduling of SPX as well as the continuing service fee revenue of about $2 million, which we recorded for the period.

That led us to have net income of $6.2 million or <unk> <unk> per basic share and that's really a great great thing to see us continuing to have.

Our consistency in revenue and allowing us to bring in and have this income.

Income operating income for the quarter.

Good to note that it included almost a million dollars from the forgiveness of the PPP loan that did take place officially during Q2.

And then one other thing I'd like to point out is when you see our 10-Q, you'll notice that we do have a net loss attributable to common stockholders and it's driven by a noncash deemed dividend you may have seen this in our prior results and I mentioned that just to say this is not a cash dividend that was giving anyone rather.

It's really just the method of accounting for the warrant exercise inducement transaction. So just trying to call it out to make sure. There's no confusion. There. There was this is a noncash item.

Operating income of course during the period.

It was driven by the increase in revenue as well as sort of a modest increase in operating expenses and as Travis mentioned, you'll notice R&D expenses did increase compared to the prior year quarter.

And that really was related to the initiation of these trials connected to the SPX products.

Our balance sheet also continues to be very strong and as of June 30, <unk> were pleased to report that we had $132 million in cash and equivalents, that's an increase of $56 million compared to the March 31.

Quarter end.

And we received the $20 million in cash milestones both from the approval and from the DEA scheduling. They were both received during Q2.

And then of course, we also brought in the proceeds of about $40 million from the warrant exercises.

Hum.

As you know the warrant exercise inducement transaction that we did in June brought in gross proceeds of the bulk of that of $39 million.

And that was really an exercise of warrants that were already outstanding.

So we essentially converted those warrants into cash on the balance sheet and we did issue a small amount of inducement warrants, but those have an exercise price of $16.50, so really.

A higher price, which indicates what we believe is where we're headed.

As of June 30, a lot of folks have been curious about exactly how many common shares outstanding and so were right at 34, almost 35 million common shares outstanding and we have 46 sites.

$46.5 million shares fully diluted.

And that includes about $4.6 million excuse me warrants outstanding So a lot of folks who have been curious about how many warrants remain outstanding.

Yeah.

Kim Pharm, certainly has a solid financial position, where we stand right now and as you know many of you have followed.

We have completely restructured and recapitalized our balance sheet.

This not only provides for operating requirements, but it also allows us to look at how to allocate resources towards our endured internal development opportunities and we also can look at other potential external investments and seat for now our cash burn rate remains at one to one 5 million per quarter.

But obviously as we make some of those strategic decisions around development opportunities.

That will change the cash burn rate as we get those development plans in place.

Another item that we've received a number of questions related to has been around the shelf registration that we completed which was just after the end of the quarter, but still certainly inside the area of interest here.

It's important to note that we actually had an S. Three previously so this was really we.

Just to increase the size of the <unk> III to really be.

In line with what our new balance sheet looks like and so.

So certainly are keeping and maintaining a shelf registration on form S. Three is very much a housekeeping step.

Say there are no immediate needs.

But it's available is strategically appropriate in the future. So that's just there and like many companies. It sits there and it's ready to go if it were needed.

Similarly, the ATM agreement that we entered into is very much a tool that's reserved for opportunistic use only.

Again this is a tool that many companies use and similarly, we've also had an ATM in place in the past so.

Really nothing new here in terms of our strategy for having the tools in the toolbox. So that we can be nimble if the right deal comes along or the right opportunity whatever the case may be.

Taken altogether.

Our goal through all of these steps, including all of the restructuring steps has been to provide for.

For an extended cash runway as well as to enable greater operating flexibility and greater strategic flexibility.

If you're in the process and you are looking for opportunities whether whatever that might look like it is important to note you need to sit at the table and be a credible party in terms of your ability to close the deal.

And similarly timing, sometimes if you have a strong balance sheet are these tools in place having them in place facilitates the timing so that when the right deal comes along you're ready to to act.

So hopefully that explains and we'll certainly entertain more of your questions, but trying to provide some insight into a lot of these moves we've made over the last several months.

I'll turn it back to you Travis.

I think thanks, so Duane and certainly some questions that we have seen.

Let me highlight those as well, but I appreciate the update.

So now looking forward to what we plan to do here at Kim form of course, we're going to be watching intently the historic <unk> rollout.

Corium certainly in the driver's seat here they do provide us updates and we will pass along anything they allow us to say.

We do know that there have been just a handful of scripts, but that is mainly an issue related to this early early early launch days.

The fact that it's not a national launch two you should be aware means that the tracking of these scripts is somewhat spotty.

It's difficult for some of these places like at QB and Symphony to record.

Through their databases.

<unk> when it is not a national rollout.

We continue to provide support for Srs with.

Consulting agreement that we have related to manufacturing scientific and regulatory affairs that will continue at least through the agreement itself, which ends in March of next year.

And certainly as I mentioned that we expect royalties and sales milestones in 'twenty two and beyond.

We talked briefly about the opportunity with SPX, we're going to have data here, we're going to be able to provide some insights into.

What happens with this molecule at higher doses and how could this benefit our various patient populations and disease states and so we can't wait to actually provide that that future direction for that product.

Ludwig just updated the improved financial position. This has really put us in a great place.

To execute on our strategic vision and it's the first time in our existence.

Not only are we looking at our internal pipeline, what we have and haven't even announced.

We're also looking at external to Kim farm and so we hope to provide an overview of this in the near future, but at this point, we know that we're in a great place we.

We have a great balance sheet, we have all the tools in the toolbox to be able to execute.

Should the need arise the desire arise and should the strategy be.

To be able to grow Kim farm in a meaningful way in the future and so that is our goal right now is to finalize that plan that strategic vision.

To finalize.

SPX development plan, and then of course present those to the shareholders investors if they were of Kim form.

I really look forward to that day, when we'll be able to highlight all that hard work we've done over the last few months.

So with that I'm actually going to start some of the questions in Lithuania is going to be our kind of our N C for this session.

All of them are passed along course through him analyst and as well as many of you individual shareholders.

Yes. Thank you Travis and thank you everyone that submitted a question we received quite a few and what we've done is try to group them into questions that really accomplished nature of everything that was sent in.

So we appreciate it so we'll get started.

First question is from Jonathan Aschoff, the analysts from Roth.

He asks can you. Please help me understand ballpark pricing per prescription of the stars and how long a prescription lasts and further how does that compare to other branded drugs in the space, notably Vyvanse.

So with this particular question I can actually say the.

WAC price for <unk> has been set at $70.90.

$12.90, sorry, thanks for thanks for Waking me up there $12.90 per capsule 30 days supply being $387.

That's a 30 day scripts. This is still a C. Two product still controlled substance and it's limited to a 30 day supply.

Four four stars now comparability I can't say, 100% I know Vyvanse is somewhere right now is a WAC price in the $12 range.

This is a slight premium above that but certainly in line with other other branded products like by events as well as from what I can see for WAC prices for branded Concerta and Focalin XR.

More in the teens low teens, depending on what prices you are looking at so certainly in line with everything from the branded perspective.

The next question from Jonathan as well.

Has there been a material acceleration in the development of <unk> hundred 79, given the favorable DEA scheduling as a C. Four.

I mean, we always say Kim farm go as fast as we can on everything so in this particular instance, yes. There has been it's not <unk> 79 per se it maybe.

What we're doing is the <unk> study that I've already described and we're doing it as quickly as possible.

It says by year end, we hope that's actually not by year end as much faster I can't guarantee any of it is as you heard me say before but.

But we are moving that program or programs ahead as quickly as possible.

Seems travelers to see four really opens our mind to other possibilities with the SPX.

<unk> candidates. So that's also part of that evaluation of.

It is.

Okay and the last question from Jonathan are you actively engaged in potential product acquisition and if so can you shed any light on progress there.

As part of our assessment of the strategy. Yes, we are looking at potentially acquiring other products are we actively engaged in looking at other products.

Only at a cursory level at this point the strategy hasn't been fully formed.

We need to know what we're going to develop internally what resources need to be applied there.

I'd say that we're not far from making that decision so good.

Good question and a timely.

Timely.

Okay, Great and the next question comes from an Investor.

As Ken Kim Farm update investors about the <unk> launch <unk> approvals the competition and the milestones associated with the store sales.

I think that's been addressed already to the best of our ability.

We can't disclose the details of the license agreement as far as the economics. We've said the royalties are separate from the sales based milestones I think that's very important for everybody to understand royalties are on top of that.

That goes from the high single digits to the mid twenties.

On the higher end of the mid twenties and then.

Sure.

As well the sales milestones.

We did improve and add some early ones.

Basically taking the other.

20, plus million dollars that was due with the label and moving some of that out and then increasing the size of both early and late stage milestones.

Yes, there was actually a related question, which seem to indicate some confusion.

<unk>.

When we describe the license amendment.

Recognize that there was a pause.

Up to $590 million worth of sales related milestones and some folks have been confused is that represent a cap on royalties.

I would just say no it's not royalties are separate and distinct from sales related milestones and so.

To be clear.

We received royalties on net sales that means for the few prescriptions that have already been gone through the system. We have already earned certain amount of money, which we can't tell you yet we don't know, but we technically have earned a royalty on the first dollar.

And that's independent of the sales milestone as sales accumulate then toward each of the sales thresholds you would receive and be earning those milestones independently. So hopefully that clears that question up.

For folks. So there is one bucket sales milestones that has a cap and discrete in dollar amounts when you reach certain milestones and then theres another bucket for royalties. That's infinite we can do we can keep just pour it into money on that side. So I hopefully that clears everything up yes, that's great.

The next question.

Have there been any <unk> sales or milestones received and I can take this question Travis We did report out the kv K indicated to us that.

That they had entered into the pilot program initially launched in Alabama, which was really a small.

Subset or a group of physicians in that area and now they reported that they wanted to expand that so I think.

We're not able to provide.

Provide you with the exact sales.

But I will say there has been products sold into.

That pilot program, but of its design, it's small and so we have not yet attained any of the sales milestones under that agreement. However, I believe it's promising that K VK is glad to or preparing to.

Expand the that program into other regions of the U S. So we will continue to track that but.

By its nature, a pilot would probably wasn't going to generate a lot to start with.

The next question is since Kim farmers financially strong can you discuss the need for a warrant exchange and ATM shelf offering.

And would these vehicles to drive further dilution.

I guess, that's another one for me Travis.

We've tried to address this in the presentation a few minutes ago My comments.

You know.

Youre right in the sense that when is.

We do have a strong balance sheet and we did a lot to get us to that point and so why why do these things I would just reiterate what I've already said which is.

You know.

We needed to have the tools and the credibility. So that now we have greater operating flexibility and maybe even more importantly, greater strategic flexibility.

<unk> ATM, our shelf offering as we said technically speaking of course it is further dilution, but what I'd, rather think of it as it enables further value creation.

And if we utilize those tools for that expressed purpose to create value.

Then.

The issuance of shares is actually expanding.

The potential of Kim farm and the valuation so I think that that's.

That's what we have in mind as many companies do so I hope all of our answers together on this help you understand better.

But that's I guess Travis do you have anything to add to that I think I would just balance that is.

On the other side of it.

The need does not present itself, we may still create value and build upon this strategy, but it's a need does not present itself there will be no utilization of the shelf for the ATM here. It is.

The statement says, there's a healthy balance sheet, there's no need for it at this given moment.

You would only do so in those instances in which the company has made the decision that there could be far more value garnered out of say the acquisition or license of an external asset or company and in that case, you would want to keep your cash reserves if possible in order to be able to.

Execute on whatever you needed to at that point further development additional technology investment.

Again, all to raise ultimately stock price and market cap for the company.

Okay. So the next question is another one for me I'm afraid how.

How many outstanding warrants are there now.

So I like the easy questions and of course I did address this in the presentation.

About $4.6 million warrants remain outstanding those are at different price points. So as we've described.

Most of those are at the $6.50 range.

About one 5 million are at $16.50.

You have the full details on that.

The next question is have the employee stock option has been priced if not what is the delay in Travis I believe they're referring to where during the annual meeting stockholders approved.

An amendment to the employee incentive plan.

So I guess would you like to take that one I'll start and you can you can fill in.

Rest of the details that I do want to again, thank everyone for supporting that effort to get that plan approved.

Once that plan was approved though there is a process in which the board and the compensation compensation Committee and management have to work together in order to use an analysis that we detailed.

<unk> in the proxy.

To make sure that we are again using fair practice.

And assessing.

How much of those should be disbursed at what value of course, and what point of time, none of that comes quickly.

That's just a process you have to go through and when that process is complete.

The individuals receive those options to purchase shares at whatever price.

Of that day that they were issued correct what Duane.

Radnet together, a little bit no well said and I would just say 2021 is a little bit of an anomaly because we typically have an annual process.

That we go through just what Travis described and if you go back Youll see that Youll see primarily form fours for option grants are filed in the February March timeframe commensurate with that annual process. This year was a little different because we did need to amend the plan and sort of again all related to our.

Alex sheet restructuring tried to.

Sort of right size that plan. It is a 10 year plan and so as we look at that analysis. This isn't.

<unk> issued them all at one time, rather it's a methodical.

10 year plan designed to create long term incentives for employees and so that's all part of the analysis to travelers described.

The next question is for you Travis can you discuss the status of the current pipeline and they specifically no K before 84 and <unk> 79, what is next and does Kim farm intends to in license other assets.

Sure I think we've addressed all of that but I think it's a nice way to kind of wrap it all up with a bow.

The answer to all of that is yes.

Yes.

Looking at external opportunities and as our strategy will evolve over the next few weeks to months.

We will be able to detail that more.

It's not just external opportunities and it's also internal opportunities. So we want to prioritize what we do with SPX, primarily that is our highest value asset. It's the most advanced in the clinic, it's already 70% of an approved product. So we've done we've done a lot of work already so that makes sense to put in a very calculated.

Investment, but let's do so.

Knowing that our next step could be the most valuable step for the company even beyond what the star is as shown.

We will be looking at our own preclinical library of compounds, where do they fit with that new indication with what we want to move <unk> forward with and how do they fit with an external opportunity. If we're fortunate enough to find something that makes sense. So all of that.

Right now being contemplated built worked on in order to be able to create a.

Kim farm that that doesn't exist today didnt exist five years ago.

Didn't exist when I started which is really the.

The ability to become a multibillion dollar company developing across a range of products and.

Perhaps one day commercializing those.

The next question.

As for me it sounds like is the current burn rate a good metric or will it increase as you develop additional products.

So I did address this to our current burn rate remains of this one to one 5 million per quarter.

Cash burn rate and I do continue to see that but as we go through the process that Travis has described.

And we make those final decisions and decide which products to bring forward or whatever that may be as Travis mentioned, you can expect that the burn rate would increase and if you go back to other years. For example, 2018, where you saw R&D spending a much different rebel well that's because we were actively.

Working through the development of <unk> hundred 15 now stars. So that is it will increase but at this point I can't predict when that is because it's dependent upon all of the good work that Travis just described.

And then actually the last question.

Today's call Travis.

One asks the stock valuation has moved since the approval and DEA scheduling.

Why do you think it has not improved.

I think there are several factors number one I didn't turn my dial up for the stock price right away sorry about that.

That is.

Horrible joke. It again, we have no control and sometimes they sort of just macro issues that occur.

I think.

From where we sit there was probably some.

Concern over some of these financial tools, so maybe I'm misunderstanding or miscommunication whatever it may be as well as just when was the star is going to be launched we couldnt say anything until it was actually launched and that was because of the confidentiality agreement we have with corium.

<unk>.

Looking at our peer group. So these are other companies in the same similar stages Kim farm.

Working on molecules.

Similar to us.

Products that are safe.

Just commercialized or next really be commercialized shortly our entire peer group since about mid June is also down significantly. So I believe theres, some sort of macro force here that.

Is that play out.

And money, it's just moving out of this particular sector. So while its unfortunate to see short term stock change for no apparent reason.

It is not.

Everybody in that space is seeing the same thing without any negative news and certainly.

Nothing of concern for the organization.

And again, we're focused on long term value.

We're focused on what we can do to change the.

Fortunately.

Luckily be fortunate to be here.

Our fortunate today, and making that even more for tomorrow.

That will be our goal has been our goal since the creation of the company.

And when we went public.

I think that covers it in Mclean, you have anything else to add.

No. That's everything I was looking through and really I think we've covered most of them. So thank you.

Yeah no we.

I appreciate the great questions.

This will format may change over time, as we may receive additional analyst coverage and so we would formalize that a little more Cape everybody there an opportunity to speak.

And maybe take a couple of questions that were outside of that realm from our shareholders, but we can.

Greatly appreciate all the interest all the continued.

Support and we look forward to providing more updates as soon as we can thanks everyone.

This concludes today's conference call. Thank you for participating and you may now disconnect.

Okay.

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