KemPharm, Inc. (NASDAQ:KMPH) Q2 2022 Earnings Conference Call August 11, 2022 5:00 PM ET
Company Participants
Nichol Ochsner – Vice President-Investor Relations & Corporate Communications
Travis Mickle – President & Chief Executive Officer
Perry Sternberg – Chief Executive Officer, Corium Inc.
LaDuane Clifton – Chief Financial Officer
Conference Call Participants
Jonathan Aschoff – ROTH Capital Partners
Operator
Good afternoon, and welcome to the KemPharm Second Quarter 2020 Corporate and Financial Results Conference Call. Currently, all callers have been placed in a listen-only mode and following managements prepared remarks, the call will be opened up for questions. [Operator Instructions] Please be advised that today’s call is being recorded.
I will now turn the call over to Nichol Ochsner, KemPharm’s Vice President, Investor Relations and Corporate Communications. Thank you. Ma’am, you may begin.
Nichol Ochsner
Thank you. Good afternoon, and thank you for joining our call to discuss KemPharm’s second quarter 2022 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 KemPharm’s 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.
KemPharm disclaims any obligation to update or revise forward-looking statements except as required by law. For more information regarding forward-looking statements, risks and uncertainties can be found in KemPharm’s filings with the SEC, which are available on KemPharm’s website under the Investor Relations section.
Speaking on today’s call will be Travis Mickle, KemPharm’s President and CEO; and LaDuane Clifton, CFO. In addition, we are very pleased to have Perry Sternberg President and CEO of Corium Inc. on today’s call to provide an update on the commercialization of AZSTARYS. Following the remarks Travis and LaDuane will participate in a question-and-answer session.
With that it’s my pleasure to introduce, Travis.
Travis Mickle
Thank you, Nichol. And thank you everyone for joining us again today. We are pleased to have Perry with us on our second quarter results call today. We’ll also be providing some product development updates from myself as well as the typical financial update from LaDuane, our CFO. So with that I’m actually going to turn it over to Perry and just do a short intro here.
Perry is a biotechnology and pharmaceutical industry leader with more than 25 years of commercial experience across a wide range of therapeutic areas and diverse markets. Prior to Corium, Perry served a dual role at Shire as the Head of Commercial for seven therapeutic area business units as well as the Chief Commercial Officer/Head of Neuroscience Division before the acquisition of Shire by Takeda in early 2019. I had the pleasure to note Perry for a number of years. And of course we work closely together as partners on AZSTARYS.
So with that Perry, I appreciate your participation and I’ll let you take it from here.
Perry Sternberg
Thank you, Travis for the introduction and for inviting me to provide an update regarding Corium’s commercialization of AZSTARYS. And this is a very exciting and busy time for us at Corium so I would like to start with a brief overview of Corium.
Next slide. I’m pleased to be able to say that over the last few years, Corium has transformed itself from being primarily a contract development and manufacturing organization into an end-to-end pharmaceutical company that develops manufactures and now commercialize innovative CNS products. Since late 2018, Corium has been owned by an affiliate of Gurnet Point Capital, a leading health care private equity organization. We have offices and a manufacturing facility in Grand Rapids Michigan and offices in Boston Mass.
We have assembled a seasoned leadership team with broad ADHD experience including some who previously worked at Shire and help launch and build Vyvanse into a blockbuster. We have two recently approved CNS products we are commercializing: AZSTARYS, which was approved by the FDA in March 2021 for ADHD; and ADLARITY, a transdermal patch that delivers donepezil, which was approved in March 2022 for dementia of the Alzheimer’s type.
Our CDMO operations is based in Grand Rapids and it has industry-leading transdermal development and manufacturing expertise development and manufacturing several consumer and FDA-approved drug products including our own product ADLARITY. So that’s the brief overview on Corium.
Next slide, please. In terms of AZSTARYS, as I mentioned, it was approved by the FDA in March 2021 for the treatment of ADHD in patients six years of age and older. It is unique when compared to all other ADHD drugs because it contains 70% serdexmethylphenidate, which is a novel prodrug of d-methylphenidate; and 30% of d-methylphenidate resulting in immediate and sustained benefit throughout the day.
AZSTARYS is a Schedule II controlled substance but the 70% SDX component is Schedule IV. It is the first and only approved methylphenidate drug containing the prodrug. We have received very positive feedback from HCPs regarding the product profile. We have a long exclusivity runway with AZSTARYS as it has robust patent protection until at least 2037 and we believe is eligible for regulatory exclusivity.
Next slide. Our launch of AZSTARYS has gone very well. We have had steady growth in prescriptions, during the market introduction phase in terms of both breadth and depth of prescriptions, meaning more physicians are prescribing AZSTARYS and those prescribing it are prescribing more of it.
In addition, we have had an increasing number of pharmacies ordering AZSTARYS based on the geographies in which we have had sales representatives in. We have been very strategic in our approach to launching AZSTARYS, applying what we’ve learned with other product launches with the initial launch in 2021 and early 2022, focusing on geographies with product coverage and we grew the field force to align with our coverage wins. We have been rewarded for our efforts. And as a result, as of July of this year, we now have a national footprint with approximately 175 sales representatives and we will — we had our first ever AZSTARYS national sales meeting last month. Our seasoned market access team has had significant success, with coverage of 145 million patient lives and preferred status for greater than 35 million covered lives.
In addition to expanding our launch to be national, we are also increasing our commercial team focus on the significant adult market, particularly influenced by the Vyvanse field force backed by Takeda being pulled back. Thus, we are now focused both on the pediatric and adult markets, which we will prove commercially and importantly provide benefits to the patients and caregivers we serve. That’s it in a nutshell.
To wrap my update on, we are very pleased at Corium with the success we’ve had in the CNS space and our transformation to an end-to-end pharmaceutical company. Our AZSTARYS launch, has gone as well, if not better than planned, and we are very optimistic about the future of our business. I want to thank Travis for the opportunity, to provide the update on Corium and AZSTARYS and for participating in this call and partnering with KemPharm.
Travis, back to you.
Travis Mickle
Yes. Thanks, Perry very much for your time and I appreciate that very detailed and very timely presentation of the update on AZSTARYS and the commercial launch. So thank you very much, again for your time. You can drop off, whenever you choose to. So now turning over to the KemPharm updates that we have today. Just briefly, for those that may be new to the KemPharm story, KemPharm really has gone through what is a remarkable transformation from its initial days as a prodrug drug discovery organization, where we transformed into development and eventually had partners and one you just heard about right there with AZSTARYS.
And now today, where we have a late-stage CNS-focused rare disease product. We have mid-stage another opportunity, as well of course revenue opportunity, with our partnerships that are already in place. This transformation is not done. We have great balance sheet. We have the potential here from any number of these products, to transform the organization again into what would be a commercial organization. So from early-stage drug discovery, all the way through potential commercial launch, commercial company that is a true value proposition and that’s what KemPharm brings for us, today.
Looking at some of our recent highlights. You can start to really see that transformation happening or unfolding before you. The most recent news I believe that everyone should be very aware of, if you’re familiar with the story is the acquisition of arimoclomol. This was an NDA-stage asset that was available for us because of some difficulties that arimoclomol went through with the CRL involved with the treatment of Niemann-Pick type C or NPC for short.
We’re able to obtain this asset through a very capital-efficient structure effectively allowing for the potential future of positive cash flow as well as overall no shareholder dilution. Certainly a very clever financial transaction.
And then not only in obtaining this asset we also have the potential to refile the NDA as soon as the first quarter of next year. So, here again we went from a product that was just approved in AZSTARYS to a mid-stage asset in what’s known as KP1077 for idiopathic hypersomnia and now with a late-stage product with a resubmission of an NDA first quarter of next year.
Just highlighting again for KP1077 our other development stage asset. That is for the treatment of idiopathic hypersomnia. Everything here in our development program is still remains on track. We have a Phase II trial that we’ll officially initiate in the second half, which of course, we are already in. Work has already begun around this and I’ll give a few more details. We also expect to see some results from a cardiovascular trial that we initiated last quarter and those topline results should be available sometime this quarter.
We have the very relevant update from Perry on the AZSTARYS launch. Very exciting news with the growth in sales reps, the growth in coverage which just really leads to the future here for the potential for royalties and milestones.
And then as I mentioned before the strong balance sheet of cash and cash equivalents of roughly $114.5 million as of the end of the quarter and the potential to add more revenue in the future through various sources.
So, with those highlights, I’m going to touch on briefly some of our development-stage assets starting with arimoclomol as the most advanced candidate. This is a little bit of a review. Everything here is basically no fundamental change to what we’ve updated in the past with arimoclomol. This is a treatment ultra-rare disease for Niemann-Pick type C or NPC for short. It’s a disabling and fatal lysosomal storage disorder.
Primary symptoms or issues with Niemann-Pick type C are related to neurological symptoms and so that’s why we believe those neurological symptoms are something we’re very familiar with, with other CNS disorders and something that fits very well within our expertise and our ability to develop.
Right now, there’s no approved treatments that exist in the United States for NPC. I’ve mentioned the very efficient capital — capital efficient financial structure for the acquisition. The upside opportunity that we see is severalfold. Number one this is a late-stage candidate allowing us to transform commercially. But it also provides an opportunity to highlight our expertise internally, which is in development of assets say that may not be particularly attractive to other organizations or things that have gone through their own development difficulties.
We’ve had here in the case of KemPharm with APADAZ, the CRL that was issued. We went through an appeal process and ultimately, got that product approved and partnered. Considering it was an opioid that is a remarkable feat.
AZSTARYS had some difficulties with statistical analysis. And we did work closely with our partner there at Corium to help them along with their ADLARITY program. So those two aspects really tell you about what we believe the future of KemPharm will be a strong development organization transforming and adding commercial as part of that value proposition.
Arimoclomol also has a number of early access programs available to it in the U.S., France and Germany primarily in other European countries. In France, and this is very progressive and interesting system in which they allow for reimbursement prior to approval for certain rare diseases that have an unmet need.
Currently under the French EAP system, we estimate, we generate roughly $12 million a year in annual gross revenue under that program. LaDuane will give a few more updates on what that looks like and how that may be used under the financial structure, we used to acquire the asset.
Looking now a little forward with arimoclomol, again we have this near-term opportunity to commercialize the asset. And I haven’t really given any forward-looking thoughts here. This is an ultra-rare disease. So we know literally there’s, roughly 300 identified patients. Many of them are part of a patient registry. And all of them go to see specialists at various centers around the country.
And so it is not terribly difficult to generate the appropriate commercial organization in order to reach all of these patients and of course all the thought leaders, clinicians and everyone involved in those processes.
So that’s why it’s great to start with a disease like Niemann-Pick as your first opportunity to treat: number one the patients; but number two to expand as a commercial — into commercialization of your own products.
This lower marketing spend really, really does help you do that. It’s not something I’ve heard concerns from various shareholders that we’re going to transform into Pfizer overnight with hundreds of sales reps. That just isn’t the case in diseases like Niemann-Pick and even diseases like Idiopathic Hypersomnia with KP1077.
We already have a network of established relationships through our early access programs both in the U.S. and the EU and we believe that these will be critical as we think to commercialize and move forward at some point and hopefully very soon with an approved product.
And then as we look outside of U.S. and EU there are other countries, territories and regions that may be of interest to us for various, partnership and licensing opportunities with arimoclomol.
That gives you just a brief overview of what our thinking is, when we say arimoclomol can be the opportunity that we’ve been looking for to transform KemPharm into that next stage of development.
Turning now to KP1077, this I’ve mentioned several times is our treatment option, potential therapeutic treatment for Idiopathic Hypersomnia. This is a rare sleep disorder in which individuals cannot achieve fully restful sleep.
They can sleep for 10, 12, 14 hours take multiple naps and continuously believe that they’re in a fog. So they have this brain fog and have extreme difficulty starting the day. So waking is one of the primary issues. This product candidate is actually 100% of the prodrug that Perry mentioned. Great introduction to the product 1077 for us Perry. Serdexmethylphenidate in this particular case is 100% of the active ingredient here not a mixture like AZSTARYS. And it’s at much higher doses that – we are anticipating it to be at much higher doses to address the fundamental symptoms of idiopathic hypersomnia, which are both severe and completely disabling to these patients.
The product itself is eligible for fast-track, orphan drug and breakthrough designation. And much of it is the same or similar IP is what Perry described. No better person to describe your intellectual property than the person that licensed it. So we’re very excited to have that affirmation on this slide.
What I haven’t really discussed in detail with KP1077 is that our dosing that we’re focused on here really is intended to address the symptoms. So it’s either going to be dosed one time at night for those that really suffer most from waking or it’s going to be dosed twice a day. So once at night for waking and once in the morning to help with brain fog that occurs throughout the day.
Now we do know that most patients have both but there is a subset where it appears that just sleep waking as their primary issue and then they function fairly well throughout the rest of the day. So we believe that with our current Phase II study we’re really going to be able to address and figure out which symptoms do best where KP1077 would be best suited to treat those patients.
Given that we plan to use a higher dose, we do see that we have to do some work and we started that study last quarter. That’s a study to look at lower cardiovascular effects of KP1077 or SDX versus that of other stimulants. So at an equivalent dose of eribulin LA. Do we perform better, similar or worse than those equivalent doses, when it comes to cardiovascular effects like blood pressure and heart rate?
We believe that we’ll actually perform better, which will lead to greater tolerability, allowing for higher and higher doses, which ultimately should show greater effect in this disease state. We also know that there’s a few drugs used off-label that can treat some of these same symptoms. In this particular case, SDX has no drug-drug interaction potential with hormonal contraceptives and antidepressants. These are some of the other products that of course could potentially use off-label to treat IH.
And just to kind of wrap up, I want to give you a sense for what we believe are the upcoming clinical and regulatory milestones that we think are going to be most relevant for our audience here. Arimoclomol, I mentioned already the Q1 anticipated 2023 refile of the NDA for NPC. We’ve already accomplished some of our goals for KP1077 for IH. Not listed here was the Type B meeting. We filed the IND. The CV trial is underway and should read out this quarter. Preliminary results are already in. We’re just putting everything together to be able to disclose that.
The Phase II trial is already underway with the planning protocol development recruitment. CRO selection is all done. It should anticipate then for first patient dosed by the end of the year. That study will go on for a while. But as I mentioned before, we anticipate sometime around Q2, Q3 to be able to have open-label interim results as well as top line data before the end of 2023.
Following the IH indication, we do expect to pursue KP1077 for narcolepsy. That’s roughly going to follow about a quarter behind everything we do for IH. Again, we don’t — the same division of the FDA, we want to make sure that they’re fully aware, primarily that we’re seeking an IH indication and that we’re going to use our narcolepsy development program to support the IH approval and subsequent addition of the narcolepsy indication to that label. So we can’t do them prominently. You have to do them kind of staggered like this, and we think that’s why that’s generated in that fashion.
So I think that’s all the relevant updates I want to give. Certainly, we’ll be taking questions later, but I’m going to actually turn it over down to LaDuane to provide us with a financial update.
LaDuane Clifton
Thanks Travis, and good afternoon. We continue to have the benefit of a very strong financial position and Q2 has proven to be the same sort of good results we believe. For the quarter, we had net revenue of $1.3 million. That’s derived from Arimoclomol product sales, consulting service fees and royalties.
It’s a change in revenue from what you’ve seen in prior quarters. And I would just note that as we’ve talked to you before, we knew that consulting service fees would be reducing as that contract came to an end. We do have a continued sort of smaller scope in that regard, but really not going to be a principal driver of revenue going forward.
And then of course, included in the Q2 revenue is only one month of Arimoclomol product sales, so just the month of June since the transaction closed there, just on May 31. So, you can expect then, that you would see increasing impact from that revenue on the go-forward quarters where you’ll have a full three months each quarter.
When you look at the net loss for Q2, it came in at $24 million or $0.70 per share. But that did include a one-time non-cash expense, which is related to the Arimoclomol asset acquisition. Most of that purchase price ends up being written off on a non-cash basis and I think that’s probably good for us in the future, but that’s where the accounting guidance led us.
If you account for that then you come up with a non-GAAP net loss of only $6.4 million or $0.19 per basic and diluted share, which I think is more relevant if you’re looking at net income net loss trends. Balance sheet itself as of June 30, we remain very strong. And as Travis mentioned, we closed the quarter at $114.5 million in cash, very strong. It was a decrease of about $4.6 million compared to where we were at the end of Q1.
And again this is sort of in line with our expectations. We knew that the R&D spending would be increasing as the 1077 program is underway and so all of the work that Travis mentioned is work that we’ve begun during Q2, and you see that increase there. But also in future quarters, I think you’ll continue to see probably a cash burn rate in the range of $4 million to $6 million a quarter. And again, that’s very much within our operating expectations.
The actual line of credit, Travis had mentioned that we brought this on really as a novel, really creative way to maintain capital flexibility. Because there is an ongoing revenue stream from the arimoclomol acquisition, we then chose to use a line of credit which can be serviced by that cash flow and then we’re able to use our cash reserves in other ways.
It gives us flexibility for our operating plan and all the development milestones that we intend to reach, as well as sort of the potential — if there are opportunities in business development ways, we still have the flexibility of a solid balance sheet for those purposes also.
Our cash runway continues to be very strong and really goes beyond 2025 and again just really puts us — sets us apart from other companies candidly in the space where we do not have an immediate need to raise capital. And to be more specific the capital we have on the balance sheet and this runway allows us to complete those things required to hopefully get arimoclomol approved.
It also allows us to do all the development work and take 1077 up to an NDA submission as well. So, we are in a very good position and I think for all of those reasons we’re very excited about the future for KemPharm. So Travis, I guess at this point we’ll go ahead and turn it over and take questions. Operator you can open the Q&A please.
Question-and-Answer Session
Operator
[Operator Instructions] We’ll take our first question from Jonathan Aschoff with ROTH Capital Partners.
Jonathan Aschoff
Thank you., good afternoon, guys. Could you please tell me what you think might be the riskiest part or parts of the arimoclomol refiling?
Travis Mickle
Jonathan, this is Travis. That’s a very good question. We have been spending the vast majority of the time since the acquisition in digging into all of the details, given that the transaction itself happened in a very rapid timeframe. Fundamentally there were three major items that were brought up in the CRL related to the validity or the strength of the primary instrument to measure NPC, also known as the NPCCSS.
Secondary to that is how basically the efficacy was determined through use of very statistical methods the [indiscernible] as they’re known in order to determine if there was an effect and a lot of that involves missing data and so forth. And then last, but not least was confirmatory evidence. I think going through that I can’t identify one that doesn’t rely on the other. I do believe that there are strong data that’s been produced by the former Orphazyme team and since the acquisition together now with those individuals as well as additional evidence through confirmatory evidence that we address all the issues.
I guess fundamentally we can’t go back and change the instrument. So if I had to say where the greatest risk remains is on convincing the agency that this is a validated and strong and robust method for determining the progression of the disease with NPC.
Jonathan Aschoff
Okay. That’s helpful. Could you please break down the $1.3 million among the three line items AZSTARYS, arimoclomol and other non-product category?
LaDuane Clifton
We’ll have to look and see how we break that down in the 10-Q, Jonathan, but I will tell you the — if I — the French EAP revenue came in at about $1.4 million and then we show it net of liability we have to owe we may potentially owe if approved. So in that reduction is a discount of about 35%. So with that knowledge then you can kind of fill in the rest. And hopefully, in the 10-Q we have a little more color there for you.
Jonathan Aschoff
Okay. Any sense of when we might see some APADAZ revenue?
LaDuane Clifton
Well, I’d just remind you that we had licensed that to KVK as you know. It is a profit share model and so we don’t expect that we would receive anything until KVK has been able to get to a point of having profits. So of its nature, it is longer in time than a traditional royalty scheme. But with that said, I’ll say, they continue to be pursuing commercialization of APADAZ. It’s still in a very small sort of localized regional setting at the moment, but I don’t believe it’s near profitability. Therefore, I don’t have a time line for when we would see profit share.
Jonathan Aschoff
Okay. And lastly you said $4 million to $6 million quarterly burn cash beyond 2025. Should I read that as if you expect to be cash flow negative through 2025, or do you not really expect that with particularly help from arimoclomol and AZSTARYS?
LaDuane Clifton
Sure. No, I love the question, because when I put together and take a look at the cash runway I try to do as a very conservative lens for that. So I believe the early access revenue is reasonable to use as part of your operating forecast. But given the sort of – it’s hard to gauge the time lines of the AZSTARYS revenue. So, when I quote that then, I’m looking at sort of our cash runway plus our budgeted R&D, plus the contribution of the French revenue, and that’s all I’m including.
The upside to that forecast would be royalties, stronger royalties than expected, or royalties in general from AZSTARYS, as well as when they reach those net sales milestones those would also be upside to that forecast. So I’m trying to paint a very realistic picture, but we also find ourselves in this place, where we’re kind of generating revenue, but we’re also certainly a development company continuing. So there is a point and we hope it’s when we get approval of arimoclomol that we will truly become a commercialized entity with meaningful revenue that we get to keep the majority of it, because we’ll commercialize directly. So, but that explains how I derive that runway.
Jonathan Aschoff
That helps me somewhat. Thank you very much.
Operator
This concludes the Q&A portion of today’s call. I would now like to turn the call back over to Travis Mickle for any additional or closing remarks.
Travis Mickle
Thanks, again, everyone for joining today’s call. I would just like to summarize a lot of what you heard here today. Certainly, we’ve talked about the transformation. You’ve heard us speak about this strategically for the company for about nine months now, moving the organization forward, and thinking about where we sit today, a strong financial position. We have a partnered asset. You just heard from our partner that is moving to a full national launch.
So we have the great upside there of AZSTARYS royalties and milestones. We have a late-stage asset that already generates revenue and effectively pays for itself, at least, here in the short term and could be cash flow positive. And then on top of that we have a mid-stage rare disease product with KP1077. It’s a remarkable story. I can’t find another one out there something like this, at our market cap and our price and where we are. It’s just simply amazing that, we sit where we are with all that opportunity. So certainly, we’re very excited and hope you are as well. Again, I appreciate the time. Thanks everyone.
Operator
Ladies and gentlemen, this concludes today’s KemPharm Second Quarter 2022 Earnings Call and Webcast. You may disconnect your line at this time, and have a wonderful day.
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