Kempharm Q2 2015 Conference Call

| About: KemPharm (KMPH)

Summary

This is the Kempharm Q2 2015 conference call, provided for investors' reference.

Although some information is outdated, it may provide some clues as to future direction.

Transcribed from the audio recording (no longer available on site).

Start Time: 16:30

End Time: 16:58

KemPharm, Inc. (NASDAQ:KMPH)

Q2 2015 KemPharm Inc Earnings Conference Call

August 13, 2015, 16:30 PM ET

Executives

Travis C. Mickle - President, CEO and Chairman; Co-Founder

R. LaDuane Clifton - CFO

Jason Rando - Tiberend Strategic Advisors, Inc.

Analysts

Tyler Van Buren - Cowen & Company

Randall Stanicky - RBC Capital (James C. Chen)

John Newman - Canaccord Genuity

Rohit Vanjani - Oppenheimer & Co.

Operator

Good day, ladies and gentlemen, and welcome to the KemPharm second-quarter 20165 corporate update 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. If anyone should require operator assistance, please press star then zero on your touchtone telephone.

As a reminder, this call is being recorded. I would now like to introduce your host for today's conference, Jason Rando of Tiberend Strategic Advisors. Please, go ahead, sir.

Jason Rando

Thank you. And good afternoon everyone and thank you all for joining our call today. At this time, 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 on this call are made pursuant to the Safe Harbor provisions of the federal securities law. Information contained in the forward-looking statements is management's beliefs based on current expectations and are subject to change, and actual results may differ materially from forward-looking statements. KemPharm disclaims any obligation to update any such factors or to announce publicly the results of any revisions to any of the forward-looking statements to reflect future events or developments except as required by law.

There is more complete information regarding forwarding-looking statements, risks, and uncertainties in the reports KemPharm files with the FCC. These documents are available on KemPharm's website at www.kemphram.com under the Investor Relations section, and we encourage you to review these documents carefully.

This afternoon Travis Mickle, President and CEO will provide a corporate and clinical development update and LaDuane Clifton, CFO will provide an update on KemPhram's second quarter 2015 financial results. We will then end today's call with a question and answer session. I will not turn the call over to Travis.

Travis C. Mickle

Thank you, Jason. Welcome everyone, and I appreciate your time this afternoon and the opportunity to update you on the tremendous progress that we've made and the results that we have from one of our key clinical studies with KP201. Just briefly, for those that aren't familiar with what we do here at KemPharm, again, we are a specialty pharmaceutical company focused on the discovery and development of novel prodrugs. The technology essentially evolves the chemical transformation of a known active ingredient, API, into a new prodrug, which then has better or improved safety features or efficacy.

Our first product in our pipeline is a prodrug of hydrocodone, referred to as KP201. It is in combination with acetaminophen as its first commercial embodiment is anticipated to be. It is designed to be an inherent abuse-deterrent opioid product, which then the rest of our pipeline kind of follows with that general tract. Today I'm going to discuss in more detail the results of a key study that we had clinically: KP201-A03. This is an intranasal human abuse liability study that was conducted just with KP201 itself. So, that is the active ingredient without any formulation added to that. And that study was done in a head-to-head comparative fashion. Head to head with hydrocodone bitartrate, which is the active ingredient in such medications as Vicodin, Norco, Lortab, and their generic equivalents.

The study was a crossover design pharmacokinetic study with the primary end points being the pharmacokinetic measures, as well as taking secondary endpoints related to pharmacodynamics. The intent of the study was to ascertain the true abuse-deterrent properties of KP201 and to further distinguish the molecular-based abuse-deterrent approach that we have here at KemPharm versus all the other formulation-based approaches currently in development for abuse-deterrence. As you can see from our recent press release, and I'll go through it here, the study demonstrated remarkable differences in PK and PD for KP201 when compared to hydrocodone alone. That is there was a 36% decrease in peak hydrocodone exposure from the hydrocodone that was released from KP201 versus that of just hydrocodone.

This is typically associated with the term Cmax. So, there's a 36% decrease in the Cmax. As well, it took about an hour longer to reach those peak blood levels for KP201. That would be a shift of about an hour in the Tmax course. The exposure, as measured by AUC, especially in these early time points was quite different. That is, in the time that it took for hydrocodone to reach peak concentrations at 30 minutes, the hydrocodone release from KP201 had already seen an 82% reduction in the area under the curve measures related to exposure. By the time that KP201 reached its peak value at an hour and half there was still a 63% reduction in the area under the curve calculation related to that same hydrocodone exposure.

Additionally, and I think very fittingly, it fits with the PK results that we have. KP201 showed a statistically-significant reduction in Drug Liking and pupil dilation, as well as demonstrating greater difficulty in insuffilation versus that of hydrocodone bitartrate alone. Just to highlight a little bit again, I think these really transformative data that we have here, this is the first study of its type in the abuse-deterrent space to show that an active ingredient in immediate-release form, head-to-head can demonstrate measurable differences in PK, without any additional formulation, really highlighting, I think, the vast possibilities we have with both KP201 and KemPharm's technology and our pipeline.

As well as we believe that based on these differences and our recent discussions with the FDA that this data will qualify for category II abuse-deterrent language on its final label to which no other company or technology to date has been able to achieve. And I will provide some time at the end. again, for Q&A regarding this study. I think again it was tremendously positive, one great part of our growing abuse-deterrent study portfolio that we plan to submit with our upcoming NDA.

Remaining for KP201, and with our other studies that we have ongoing and under way there is the KP201/A02 trial. This is the second intranasal human abuse liability study. This study is intended to measure in a similar fashion the pharmacokinetics and pharmacodynamics, but now it would be with the to-be marketed formulation. The one that ultimately would be sold in the marketplace. That study is anticipated to conclude shortly and we would be planning to announce results in this quarter as well.

Additionally, we have ongoing tamper-resistance studies and in-vitro tampering studies that we also plan to announce this quarter. Again, that would focus then getting all of our information collated together for the NDA submission, which we now have nailed down more precisely into the forth quarter of this year.

One thing that's very interesting as we continue to grow this positive data is the more positive data we have, the more comfortable we feel with our NDA filing date, but also the additional work that has to be put in to describe these wonderful results that we have, so we can get the best labeling possible for that product.

I didn't mention before we were happy that we conducted out recent IPO. With the backdrop of that IPO there was also some management realignment that we did at the top positions and we've had announcement on that previously. Rusty, our CFO in the past has now taken the position of a chief business officer. LaDuane Clifton who is on this call is now our chief financial officer. And really the intent of this was to highlight number one, the key strengths of each individual to maximize the value for KemPharm and its shareholders, as well as to look strategically towards the future. Again, Rusty will be focused on business development, investor relations, as well as the strategic focus of the organization. LaDuane will be primarily responsible for the financial operations of us going forward now as a public company and hopefully in the future, as a late-stage development-to-commercialization organization.

I'd also like to remind everybody, I've mentioned before, we plan to have our intranasal human abuse liability trials all completed with the second study and announce that data in this quarter as well as the tampering studies that we have ongoing. Additionally, I pointed out that in the fourth quarter we plan to submit our NDA. The expectation would be with that NDA filing somewhere mid-next year, we would have a priority review and that would be mid-next year for our PDUFA date. Additionally, KP511 and 415 are progressing nicely and the proof-of-concept studies for those two molecules are planned for the first half of next year for KP511 and the second half of next year for KP415.

So, we continue to advance the pipeline looking forward to, again, the great opportunities we're seeing already with KP201, now advancing in the pipeline with a better understanding of truly what a prodrug can bring to the table and how differentiated it is versus the current abuse-deterrent technologies. LaDuane, I'd like to turn it over to you to provide a short update on the financial events of this quarter.

R. LaDuane Clifton

Thank you, Travis, and thank you everyone for joining the call as well. As Travis mentioned, from a financial perspective certainly the IPO was a major event for the company. We had net proceeds of 59.9 million after underwriter discounts and commissions. And with that well positions our balance sheet. As of June 30th, we had 64.2 million of cash on the balance sheet and we also have 35 million dollars remaining available under the Deerfield Credit Facility that's been in place since 2014. Net loss for the three months into June 30th was 29.8 million, or $2.45 a share. Of that, 22.7 million was a fair value adjustment to our derivative and warrant liability and therefore, non-cash related. So, free cash flow for the period with the use of cash of about 5.3 million. So, thank you.

Travis C. Mickle

Thanks, LaDuane. Now we can open it up for questions.

Operator

Ladies and gentlemen, if you would like to ask a question at this time please, press star and then the number one key on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. One moment for questions. And our first question comes from the line of Tyler Van Buren from Cowen and Company. Your line is now open.

Tyler Van Buren

Hey guys. Congratulations on the truly groundbreaking data. Just specific with the data, you know, the decrease in peak hydrocodone exposure's pretty straightforward as well as the AUC, and there are big reductions in AUC, but was opening to get your take on kind of the delay and the peak hydrocodone exposure by one hour. I'm assuming that that's kind of a result of the drug having to go down the back of the throat to the gut and get hydrolyzed there. I just wanted to get your commentary on that. And then just taking a broader step back with the guidance obtained during the May pre-NDA meeting, was hoping to get any kind of feedback that you may have gotten from the agency on the oral data, as well as the category II abuse-deterrent labeling which you all seem pretty confident in. As well as finally, you know, when you think it makes sense to kind of really pick up strategic discussions? Thank you.

Travis C. Mickle

Thank you, Tyler. So, to answer your first part of your question yes, we believe that the delay in the Tmax of an hour you know, it is mostly related to the oral portion of this drug. Now, you know, running down the back of the throat and becoming oral product at that point. Very typical type of curve that we've seen. We've seen that Tmax before with all of our oral studies in that range, but most interestingly qualitatively we do see that this is actually lower exposure at the same dose as our oral dose. So, it even appears to be less a drug there than if it was taken orally, which would be quite remarkable and I think we will be measuring that head to head in our next intranasal study. Can you repeat the second part of your question, please?

Tyler Van Buren

Just with the respect to the guidance obtained or in the May pre-NDA meeting, just wanted to maybe potentially hear any feedback on the oral data as well as with regards to category II abuse-deterrent labeling. It sounds like per the guidance maybe they just required um, statistical significance. So, I was just hoping you kind of put the guidance in context, now that we have the data.

Travis C. Mickle

Yes, absolutely. Having the data in hand, we actually did present this directly to the agency at the pre NDA meeting, and again, showed them this study design. It was their comment, not our question, that said it should qualify for category II labeling. So, they've seen the study design, they realized there could be differences and that those differences -you know, again, they're outside of the bioequivalence range, that they have statistical significance which we meet that with this particular study. We should be fine. We have not yet had um, further dialogue on the oral data. That we have to do a submission. That's still in process and there'll be a further update as soon as we have any additional thoughts around study designs and/or clarity around what we may get from labeling perspective with the oral data that we announced this quarter as well.

Tyler Van Buren

Great. Thanks so much.

Travis C. Mickle

And then your third part was I believe your strategic question. You know, we don't specifically comment on ongoing discussions. I think in the past we have pointed to the NDA filing as the culmination of all the data that would be available to really have an in-depth and detailed discussion. We always have continuing dialogues and relationships with all the people in the space. So.

Tyler Van Buren

Yep. Thank you.

Operator

The next question comes from the line of Randall Stanicky with RBC Capital Markets. Your line is now open. Please, go ahead.

James C. Chen

Hi. Congratulations on the data. This is James Chen, for Randall. In this intranasal study I believe there was a lactose powder arm, unless that's only in the A02. But can you tell us how KP201 and the active hydrocodone performed against that arm and what the Emax likeability scores were as well?

Travis C. Mickle

So, this study was a PK study. So, it was not placebo, did not need to be placebo controlled. So, we're measuring just the active ingredients. We used some small amount of a filler, but it wasn't lactose in this particular design. So, you know, again, there was not the placebo part of this. It's just the two active components. The second part of your question. Again, the Emax scores, the pupil dilation and the ease of snorting were all secondary end points, which we had done without the traditional qualification and drug discrimination design that's used to validate these models.

So, we did this for kind of our information. We'll be publishing the entire data set in the future, but I can tell you that they were statistically significant differences between those and again, for some reasons internal and for confidentiality we're not disclosing those at this point.

James C. Chen

Okay. All right. Thanks. And also, the combination hydrocodone market looks like it's starting to stabilize following the rescheduling last year. How much of the 20% volume that has left do you think may come back if there is abuse-deterrent available. It's still a big market, but do you think those scripts have kind of lost and unlikely to come back?

Travis C. Mickle

No. I certainly don't and I think um, one thing that is ever evolving within this space is what are the value of the abuse-deterrent products to you know, grow in these markets as well or essentially bringing them back. One big question that I think we've had internally we've discussed on the last call as well is whether or not to pursue a different schedule with KP201. I think the data that we have thus far is very helpful and in making us look at a different schedule here. We'll continue to gather the data and we'll highlight that for the entire shareholder base and investor community as soon as we know what the best path forward would be.

James C. Chen

Okay. Got it. So, you guys haven't fully decided if you'll just take the schedule to like the class or try to get a better one, haven't decided that yet?

Travis C. Mickle

We haven't. And I think the data needs to drive that decision to some degree. The data we have right now is very, very compelling that we should um, push forward with that, but you know, it's the entirety of the data set that will make that story possible.

James C. Chen

Got it. Okay. Thank you.

Operator

The next question comes from the line of John Newman with Canaccord. Your line is now open.

John Newman

Hey, guys. Congrats on the data. Just have two questions. The first one was when you presented the oral abuse data for KP201 there was some interesting safety findings there. I'm wondering if you saw anything similar for the intranasal study, for the first intranasal study? And the second question I have is I know that we're getting pretty close, but do you think that you might be able to present some of this information at Pain Week?

Travis C. Mickle

So, yeah. To answer the first part of your question, the AEs were very similar for this study. The dose that we had was essentially a two-tablet equivalent taken intranasally. Hydrocodone again, produces fairly consistent AEs of which we had similar AEs for KP201. Again, all were mild I believe for this particular study. With the very near term of Pain Week, it wouldn't be possible for us to submit a detailed um, poster or presentation of the data, but we are working to put together all of our clinical studies for presentation and in the very near future at various pain conferences.

John Newman

Okay. Great. And then, just following up on the comments that you've made with regard to the scheduling. Obviously, without getting into too much detail that might be proprietary, how will you present the case or the argument to consider perhaps Schedule 3 to the agency um, as you kind of gather all this data?

Travis C. Mickle

From my understanding and from our experience internally the process by which this will be determined to be scheduled will start with the FDA and then controlled substance staff. So, again, making it a logical scientific argument that head to head direct comparison to a scheduled to product showed consistently in abuse settings, in oral settings, in tampering settings a difference that was always improved or safer. I think it will make a very logical and compelling argument. Again, as I said, we're still formulating that with the additional data that's coming in from the other studies ongoing and you know, we'll give as soon as we know what that answer is where our future will be around that path we'll let you know.

John Newman

Great. Thank you.

Operator

And the next question comes from the line of Rohit Vanjani from Oppenheimer. Your line is now open.

Rohit Vanjani

Hi. Thanks for taking the questions. Was this study required for the NDA package? I had it as only the oral human abuse liability study, which already read out in the KP201/A02 which we anticipate reading out in 3Q '15 as well, but was this study required for the NDA or is it more just about labeling?

Travis C. Mickle

Yeah. This wasn't required for the submission. We had designed it and presented it at the pre NDA meeting as you know, looking at the prodrug. We already know that abusers will do things like cold water extraction to remove hydrocodone from the combination products. They agency's aware of that. So, we were going the extra mile here to kind of look at additional things we can do for differentiation. And looking at this study again, they really felt compelled that A, look, if you're showing a difference of the actual prodrug head to head with hydrocodone I mean, that's very informative of how this drug may be misused in numerous ways outside once it gets into the market. So, they were very excited about the design and wanted to see what the data would be. And I think that's what compelled them to even offer up. That they believe that they would qualify for that category to pharmacokinetic abuse-deterrent language.

Rohit Vanjani

So, but it is the only two studies that I've mentioned that's required for the NDA then? The oral abuse and the KP201/A02 study.

Travis C. Mickle

The only required one was the oral study. The A02 was again, one of our studies used for differentiation and it was the original one that we had proposed to them. Unfortunately, whenever you propose something it seems to become a requirement as well. So, that's kind of what we've seen with the A02 as well.

Rohit Vanjani

Okay. And then the timeline that you've mentioned I mean, you've said 4Q '15 filing and then approval in mid-2016, but if you decided to go for that S3 designation that timeline will get pushed out, correct?

Travis C. Mickle

No. I don't believe so. That shouldn't change anything from the FDA's perspective. The downstream effect would be the DA would now have to take the schedule recommendation from the control substance staff and the FDA and determine what the final -you know, adopt that schedule. So, that tends to take, you know, six to nine months, and so that's where we would be looking at the potential commercial launch early in '17. So, it's not really a delay in the approval or anything like that. It's really you know, pushing out the potential commercial launch. But just given the tremendous value you may get from a Schedule III, you know, that's still I think worth considering now and potentially pursuing in the future.

Rohit Vanjani

Would you launch in mid-2016 under a S2 and then change it to S3 if that designation happens?

Travis C. Mickle

Well, that's another one of the factors that we're looking into.

Rohit Vanjani

Okay. And then, what was the percent decrease in the area and that occurred for the full four hours?

Travis C. Mickle

The study actually went for 24 hours.

Rohit Vanjani

Oh, okay. Sorry, go ahead.

Travis C. Mickle

Yeah. It was roughly 20% difference. So, the curve was extended out very far from the initial high that you seem to get with just hydrocodone.

Rohit Vanjani

And then on the oral liability trial, I think there was a trend towards, or trend observed of lower hypoxia, but it wasn't powered for that and then I think you discussed maybe looking at further studies into that. Have you decided on anything there?

Travis C. Mickle

We have this question earlier, but yeah, we're putting together a data package to submit to the agency that would include some trial designs that we want to consider and then we would as soon as we get feedback we would announce what those would be and timelines for the data releases.

Rohit Vanjani

Okay. Great. Thanks for taking the questions.

Travis C. Mickle

Thanks everyone.

Operator

Thank you. I'm showing no further questions. I would now like to turn the call back over to Travis Mickle for any closing remarks.

Travis C. Mickle

Well, again, I really appreciate everyone's time this afternoon, this evening. And just you know, looking forward to the future this is a tremendous milestone for the organization, for the technology. Extremely excited about two awesome data sets so far. Looking forward to the A02 data upcoming. The tampering studies we've already seen the data internally from the studies we've done and have put in our various filings and you've seen in presentations. We think that's going to be very reproducible. And so, with those two data sets looking at the NDA filing really some tremendous milestones for the organization upcoming and we're excited to be doing this now as a publicly traded company. We will be hosting future calls in the future and I really again, want to thank everyone for their time this afternoon.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a great day.

Disclosure: I am/we are long KMPH.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.