KYTHERA Biopharmaceuticals' CEO Discusses Q4 2013 Results - Earnings Call Transcript

KYTHERA Biopharmaceuticals Inc. (NASDAQ:KYTH)

Q4 2013 Earnings Conference Call

March 17, 2014 16:30 ET


Heather Rowe - Associate Director, Investor Relations

Keith Leonard Jr. - President, CEO

John Smither - CFO


Chris Schott - JPMorgan

Roger Kumar - Goldman Sachs

Tyler Van Buren - Cowen & Company


Good day ladies and gentlemen, and welcome to the KYTHERA Biopharmaceuticals Fourth Quarter and Full Year 2013 Operating Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time.

(Operator Instructions) As a reminder, today's conference call is being recorded.

I would now like to turn the conference call over to host Ms. Heather Rowe, Associate Director, Investor Relations. Please go ahead.

Heather Rowe

Good afternoon and thank you for joining us. For our prepared remarks and Q&A, I'm joined here today by Keith Leonard, President and CEO and John Smither, our CFO.

Before we begin with our formal remarks, we want to remind you that we will be making forward-looking statements, including financial projections as well as plans and expectations as detailed in our operating results release issued earlier today. These forward-looking statements contain certain assumptions, risks and uncertainties that are beyond our control and could cause our actual results to differ materially from these statements.

A description of these risks can be found in our latest periodic report filed with the SEC and the recent press releases. In addition KYTHERA does not undertake any obligation to update any forward-looking statements made during this call.

I will now turn the call over to Keith Leonard, President and CEO.

Keith Leonard Jr.

Thank you, Heather, and thank you for joining us this afternoon.

Our call today is broken into four sections. First, I will provide an update on key 2013 and recent achievements. Then I will turn it over to John to review our financial results. Next, I will touch on the expected timing of our planned regulatory submissions and finally, after brief closing comments we will open up the call for Q&A.

Our achievements over the last year clearly reflect the basic tenants of our corporate philosophy. First, we focus on quality before speed. This tenant applied to the timing of our U.S. Phase III trial results. It applies to our approach to the expected U.S. NDA filing in the second quarter and will apply to future activities. That said we also position ourselves to be opportunistic and to maximize our ability to move swiftly when we see the right opportunity.

We titrate our decisions and actions so as to not to get ahead of ourselves, but we also recognize that we need to make certain prudent investments in areas we believe will enable long-term company success. We carefully balance this against another core company value which is to be resourceful. These collective values drive our decisions and you will see their outcomes reflected in the 2014 financial guidance that John will provide.

With that as a brief introduction, let's look back on the past year.

2013 was clearly a decisive year for KYTHERA most important with the announcement of positive results from our pivotal U.S. and Canadian Phase III trials in September. We achieved p values of less than 0.001 on all primary and secondary endpoints in our REFINE-1 and REFINE-2 trials for ATX-101, a potential first-in-class facial injectable drug for the reduction of submental fat which commonly presents as a double chin.

In addition, these trials demonstrated high patient satisfaction as well as improvement in visual and psychological impact. Importantly treatment for the ATX-101 was generally well-tolerated with most adverse events being transient and mild to moderate in severity. The area under the chin is important to patients because it impacts overall facial harmony, balance and attractiveness. Currently there are no proven non-surgical options to effectively reduce submental fat.

We believe ATX-101 could provide a solution that fulfills this unmet need, and we’ve heard from many of our key opinion leaders that they share this belief. If approved ATX-101 will be a first-in-class submental contouring injectable drug.

I briefly touched on our intention to be opportunistic. We strive to maintain the ability to add quickly when the right opportunity arise. For example, following our positive U.S. and Canadian Phase III clinical trial results, we saw an opportunity to strengthen our balance sheet through a follow-on offering. As a result of that offering in October, we raised an additional $125 million in net proceeds.

In addition, as part of scanning the aesthetics landscape to assess products that might support our long-term goal to build a leading aesthetics company, it became obvious to us that our highest priority was to regain control of x U.S. and Canadian rights to ATX-101. As a result, we can go today, we announced our acquisition of rights to ATX-101 outside of the U.S. and Canada from our former partner Bayer Consumer Care.

We believe that the acquisition of these rights is a transformative opportunity for KYTHERA and we have the right executive team to determine the future path of ATX-101. As we stated in our recent conference call, we will undertake a detailed analysis on a territory by territory basis to determine where and how to best maximize ATX-101. In addition, we will assess potential future indications and line extensions for ATX-101.

John will go into more details shortly, but it's important to note that the detailed structure allows us to preserve cash with only a small impact to shares outstanding. Once again, we believe this is another example of how we strive to make judicious investments at the right time while being deliberate and resourceful in our execution.

In summary, we are pleased with our achievements in 2013, these accomplishments taken together reflect our core values and demonstrate significant progress toward our objective to maximize the total value of ATX-101 and to build KYTHERA into a leading aesthetics company.

With that I will turn the call over to John.

John Smither

Thank you, Keith.

As of December 31, 2013, cash and cash equivalents and marketable securities and restricted cash totaled $172.1 million at December 31, 2013 of which $5.1 million was restricted. This compared to $95.3 million at December 31, 2012 of which $16 million was restricted. Our R&D G&A expenses and net loss are detailed in the press release, which we issued this afternoon. We are happy to address any questions in these areas when we open the call to Q&A.

Our press release and discussion so far are been expressed in financial terms as reported under U.S. generally accepted accounting principles or GAAP. As a reminder, there will be several items in 2014 that under U.S. GAAP are reflected in the statement of operations as an expense but don't necessarily require the use of cash.

The most significant non-cash charge will be $84 million in-process research and development charge which we expect to occur in the first quarter of 2014. This charge is a result of the acquisition of the rights to ATX-101 for territories outside the U.S. and Canada, which as we announced last week were purchased using $33 million of KYTHERA common stock and $51 million note to bear.

In addition, we have benefited from an increase in our stock price which when used in the accounting for stock-based compensation such as stock options and restricted stock units will cause significant increases in the expenses we report for stock-based compensation, a non-cash charge to the statement of operations.

I would now like to shift my comments about 2014 away from U.S. GAAP financial reporting to describe activities in terms of cash use. To be clear, when I use the term cash, I mean cash and cash equivalents and marketable securities which represent our liquidity.

As I noted earlier, we began the year with a cash balance of $172.1 million of which $5.1 million was restricted cash, in our press release we provided guidance that we expect to end 2014 with a year end cash balance of between $90 million and $100 million. This guidance is based on cash, cash equivalents and marketable securities only. It excludes restricted cash. We are assuming the remaining restricted cash will be used for obligations under the collaboration agreement incurred prior to the acquisition of the rights from Bayer.

Therefore, the purposes of our year-end cash guidance and effective beginning year cash balance of $167 million is a more appropriate starting point. In addition to the cash consumed by our normal operating activities, I would like to highlight two specific items, which are other uses of cash during 2014.

First, recall that in 2011, we entered into a credit facility according to those terms; we will repay approximately $6 million on this outstanding venture out in 2014. This represents a significant increase over 2013 and we expect to venture that note to be fully repaid toward the end of 2015.

In addition, as a result of the acquisition of rights to ATX-101 outside the U.S. and Canada, we expect an increase of between $5 million and $6 million to our normal 2014 operating activities.

Now, I would like to provide some perspective on our baseline operating activities and their implications to the use – in 2014 on our cash balances.

Let me start with R&D, which is a remainder includes research, clinical development, regulatory, medical affairs and manufacturing. In line with our discussions during our third quarter call, we will incur certain incremental cost in connection with the four additional non-registration clinical trials. While those trials are not large, they do impact spend. Second, we will begin investing to build our medical affairs capabilities including a small field based staff to assist for preparing the company for potential commercial launch.

This is another example of where we believe making the investment ahead of FDA approval is a prudent use of the company's liquidity resources. Third, we have significant ongoing activities within manufacturing specifically relating to the planned validation of a second drug supply manufacturer as well as additional activity related to drug product as we prepare for pre-approval inspection.

Four, as we approach our NDA submission, we have significant regulatory activity related to the expected second quarter 2014 submission of our U.S. NDA and preparation for a possible panel meeting. And finally, we expect to have incremental spend within regulatory to prepare for several x U.S. filings which we have discussed earlier.

As for G&A, which as a remainder includes sales and marketing, general and administrative activity such as finance, legal and system infrastructure such as IT and IS and rent. We anticipate a marked increase in early commercial activities as we prepare for a potential launch. This does not include bringing on sales reps at this time, but rather it means early commercial preparations such as market research and hiring of key sales leadership.

Also included in G&A is investment for an enterprise system including commercial launch infrastructure such as sales force automation and enabling the set up of third-party logistic providers ahead of and in support of a potential commercial launch.

Again, we know our future long-term success hinges on some of the investments that we make today. Let me assure you, we will be judicious and vigilance towards the resources and our decisions will be driven by a focus on quality first as we lay the ground work for potential approval in commercial launch.

Keith touched on the importance of timing, key events will determine how we gate our planned spending to ensure spend doesn't get ahead of key derisking events. Near term examples include the expected U.S. NDA filing in the second quarter potential NDA acceptance and the FDA's decision on the requirement of an advisory panel. In short, we will focus on making the right investments in the right areas at the right time.

With that I will turn the call back to Keith.

Keith Leonard Jr.

Thanks John. In my opening statements, I highlighted recent accomplishments; I will now go into more detail on our key priorities in the coming quarters.

First and foremost, we plan to file our new drug application for ATX-101 in the U.S. which remains on track for submission in the second quarter. Under PDUFA V, we are planning for a standard 12-month review. This means we wouldn't expect approval before the second quarter of 2015.

Second, we plan to make multiple x U.S. submissions for ATX-101 in the next 12 months. We will provide additional details on this in the future.

In summary, I'm proud of our accomplishments this past year looking ahead we plan to build upon this progress through sound planning and solid execution, while remaining focused on our core values of quality, good investments and resourcefulness. We believe all of these positions us to achieve long-term success and deliver shareholder value.

Lastly I'd like to recognize the invaluable contributions of our staff, our accomplishments this past year are result of their dedication and hard work and I couldn't ask for a better team as we undertake what I know will be another exciting year.

With that, thanks for joining us today. We will now turn the call back over to the operator to open it up for questions.

Question-and-Answer Session


Thank you. (Operator Instructions) Our first question will come from the line of Chris Schott from JPMorgan. Your line is open.

Chris Schott - JPMorgan

Great. Thanks very much. Just a couple of questions here, may be first with just how you're thinking about investing from here, you've obviously got a great asset with ATX-101 but it seems like there is a lot you can spend on. Can you just talk about how you think about balancing the spend you're going to need in the U.S. to get this product off the ground investing the R&D and the additional indications to the U.S. versus some of the x U.S. ambitions, and how you're thinking about as we kind of look beyond 2014 into 2015 and 2016, just how much more of this what this cash burn actually looks like?

The second question I had was in terms of you mentioned additional indications for ATX-101, can you just may be talk about what you're kind of thinking about in that front and any timing you could talk about there? And then finally just to wrap up just a follow up actually from last week's call. I know on that call you mentioned that Bayer had – you had to push Bayer about acquiring the x U.S. rate to ATX-101, can you just may be elaborate a little bit more in terms of the use of equity as a payment, was that something that KYTHERA was looking for or something that your partner had suggested? Thanks very much.

Keith Leonard Jr.

Thanks Chris. It's a complex set of three questions; try to attack them in order one at a time. So the balance of the U.S. spend versus x U.S. spend, first and foremost we're going to restrict our comments today really to the 2014 period and may be through to approval. And part of that's because this territory by territory analysis that we've talked about isn't complete yet and so the spending that would match that territory by territory approach has not been fully laid out.

Having said that we're very much clearly focused on ATX-101 in the U.S. as our first priority as we discussed last week its about that – this country alone is about 50% of the worldwide opportunity if you believe the facial injectables existing market is a decent model for ATX-101, which we think as a starting place it is.

So huge opportunity in the U.S. our spend is clearly focused on the U.S. first and of course, we have great data in hand, we'll look to leverage that as much as possible and the spend that John mentioned for 2014 is primarily focused on regulatory enablements in the near term.

As far as additional indications, two aspects what could they be and second timing. In terms of what they could be we're still compiling a list of suggestions that we have gotten from our key opinion leaders. As you know there is a lot of interest in other possible development uses for the product. So we'll be looking at a balance of between both of the market opportunity to really have a nice impact on patients and also the ability to create scales in that area that would be amenable to a real development program.

As far as the timing, I can't update you any more other than to say we don't plan to undertake any of that work until after our initial approval. We think that's the most prudent way in making sure we maintain focus on ATX-101 facial injectable submental fat first in the U.S.

And then lastly on your equity question, Bayer approached us on the topic of equity as a possible solution. As you can see from the outcome, we were looking for ways to convey value but to do so in a way that didn't have a large cash outlay for us. We're clearly focused on cash and John's comments took you through the details of how we're seeing the balance of investment versus being cash bearing and having it focused on the right elements. So we thought it was a nice solution actually they also specifically said that they would like to have continued upside in from the company as a basis of the deal and so equity turned out to be a – the really nice solution.

Chris Schott - JPMorgan

Okay. Thanks very much.

Keith Leonard Jr.

Thank you.


Thank you. Our next question will be coming from the line of Gary Nachman from Goldman Sachs. Your line is open.

Roger Kumar - Goldman Sachs

Hi, this is Roger Kumar stepping in for Gary, thanks for taking the question. I had a couple here, so first I know its still early but would you guys be thinking about falling at similar path and strategy to what Bayer had laid out, or are guys taking the opportunity to revisit the plan?

And also just wondering are you guys considering any other uses of cash bringing other products into the portfolio, or at this stage you guys more completely focused on ATX-101? Thanks.

Keith Leonard Jr.

Hey, thanks Roger. I'll pick those – I mean, we don't feel obligated to follow the same path as Bayer. But they have done a lot of work ahead of us; they’ve turned over a lot of information that we're going through at the moment. And so while we see that as a good starting place, we're also going to make sure that we approach this with our best thinking as opposed to only inheriting their strategy and approach. That's why we need some time to go through the territory by territory analysis we discussed earlier.

As far as other products to acquire, ATX-101 is clearly our top priority. So we think we have – we can be opportunistic and choosy. Our business plan is definitely to build a leading aesthetics company and we're always looking for other potential opportunities but we have to be really the right opportunity that we can convince you as analysts or investors was worth additional investment. So while we're going to look for additional opportunities rest assured we will be judicious in our top priority is to maximize the value of ATX-101 first.

Roger Kumar - Goldman Sachs

Okay. Great. Thanks. And just one quick follow up sorry, how long will it take for you guys to get all of the data over from Bayer to you guys?

Keith Leonard Jr.

We don't have an exact timeline. But we're planning for a relatively short transition it involves commercial information a lot of development information obviously some manufacturing information. So there is a lot to come across but we have a desire to do it as expeditiously as possible. So it shouldn't drag out more than a couple of months.

Roger Kumar - Goldman Sachs

Okay. Great. Thank you so much.


Thank you. (Operator Instructions) Our next question will be coming from the lie of Tyler Van Buren from Cowen & Company. Your line is open.

Tyler Van Buren - Cowen & Company

Hi, there. If I could just dig deeper into the Bayer filing strategy, could you please tell us where was Bayer in their interactions with the European regulatory with respect to the filing before it was reacquired? Also was there a dialog going on with the European regulators and could you give us some context as to what was being discussed?

Keith Leonard Jr.

That was still Bayer's business, so I'm not going to go into detail. But I can tell you that they were in discussion on both a national and centralized basis. And one of the things that we're considering and this shouldn't surprise observers of the aesthetics industry, in Europe is one of the central question is whether to file centrally or nationally and you can do a process both of those path, so that doesn't have to be a huge time delay factor. You can see that most of the aesthetics approval in fact, I think all of the aesthetics approvals have so far been progressed on a national basis.

Tyler Van Buren - Cowen & Company

Okay. Thank you.


Thank you. (Operator Instructions) And at this time, I'm not showing any further questions. Thank you for your participation in today's conference starting at 4:30 Pacific Time today, a replay of the call will be available. The replay will also be available on KYTHERA's corporate website at This concludes the presentation and you may now disconnect. Everyone have a great day.

Keith Leonard Jr.

Thank you.

John Smither

Thank you.

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