Kempharm Q4 2015 Conference Call

| About: KemPharm (KMPH)

Summary

This is the Kempharm Q4 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Although some information is outdated, it may provide some clues as to future direction.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: 16:56

KemPharm, Inc. (NASDAQ:KMPH)

Q4 2015 KemPharm Inc Earnings Conference Call

March 10, 2016, 16:30 PM ET

Executives

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

R. LaDuane Clifton - CFO

Tracy Woody - CCO

Jason Rando - Tiberend Strategic Advisors, Inc.

Analysts

Tyler Van Buren - Cowen & Company

Randall Stanicky - RBC Capital (Ashley Ryu)

Rohit Vanjani - Oppenheimer & Co.

Operator

Good day, ladies and gentlemen, and welcome to the KemPharm fourth quarter 2015 corporate update call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. If anyone should require assistance during the conference, please press star then "0" on your touchtone telephone. As a reminder, this call is being recorded. I would now like to introduce your host for today's conference, Mr. Jason Rando. Sir, you may begin.

Jason Rando

Thank you. 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 laws. Information contained in the forward-looking statements is management's beliefs based on current expectations and is 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, risk and uncertainties in the reports KemPharm files with the SEC. 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. Speaking on today's call will be Travis Mickle, President and CEO, who will provide an update on KemPharm's corporate and clinical development achievements, as well as the recent regulatory announcements involving KP201/APAP. LaDuane Clifton, CFO, will review KemPhram's fourth quarter and year-end 2015 financial results. And Tracy Woody, CCO, will provide an overview of KemPharm's commercialization strategy for KP201/APAP. At the conclusion of the remarks, we will then proceed to a question-and-answer session. I now turn the call over to Travis.

Travis C. Mickle

Thank you, Jason, and thanks everyone for joining the call this afternoon. 2015 was truly a transformative year for KemPharm. Starting with our successful IPO last April, and ending of the year with the filing of our NDA for KP201 with acetaminophen. We continue to build the business operationally now as a public company, as a research and development organization with our additional products and technology that we introduced in 2015 and the early part of 2016, as well as commercially with the advancement now of KP201 with acetaminophen towards the potential approval in June. Even with all the success that we had in 2015, we're even more excited about lies ahead for us in 2016.

I would like to highlight just some of the recent events that have occurred so far, as we really get excited about what's upcoming for this year. Number one, we'd like to point to the recent close of our successful financing during a very turbulent time for both the healthcare industry and the market, as well as our notification of our acceptance for review of our NDA for KP201/APAP. With that notification, we received a priority review of six months' review time, and a PDUFA date set for June 9th, based not on the acceptance date, which would have been expected from the FDA guidance and prior practice, but based on the filing date. Additionally, we also filed our IND for KP511, recently highlighted in our continued success in advancing our technology through important milestones. To that, we remain focused on advancing at least one new discovery candidate into the pipeline every year, as we did last year with the advancement of KP746, our ER prodrug of oxymorphone. At the same time, we want to file at least one new NDA each year to expand our available products, which we feel are truly differentiated in the marketplace, with long composition-of-matter based patents. Looking forward into 2016, certainly the PDUFA date for KP201 with acetaminophen is a very important milestone for the organization, as well as KemPharm's transition from a development company to a commercial entity.

We are also looking forward to data from our proof of concept studies we have planned for both KP511 and KP415 in this year. We expect to see KP511 have proof of concept data in the second quarter of this year, as well as proof of concept data for KP415 in the second half of this year. Additionally, based on the results of our studies with KP201, we found that at high oral doses, KP201 releases statically lower amounts of hydrocodone when compared to other hydrocodone combination products. We have provided this information to the FDA, and are working to start two additional studies to investigate the possibility that KP201 could reduce respiratory depression, which may help reduce the risk of overdose. Both these studies are planned to start this year, with future guidance as to their completion. It should be noted that no other opioid or formulation of an opioid has demonstrated the ability to self-limit exposure to the opioid at high doses. And this data would be a critical part of getting this effect into our label for KP201[/APAP]. With that background and forward-looking approach to KemPharm in 2016 I would now like to turn it over to LaDuane who will discuss our financial results.

R. LaDuane Clifton

Thank you very much, Travis. Our quarterly results, our Q4 2015, we had a loss of $9.2 million, or $0.64 per share, and that's compared to a Q4 2014 loss of $11.8 million, or $4.97 per share. The improvement in net loss quarter report was primarily driven by a lower change in the fair value of our warrant liability in comparing the two quarters. The use of cash during Q4 of '15 was $7.7 million, which included the payment of the $2.4 million PDUFA fee we submitted with the KP201/APAP NDA. We expect that amount to be refunded in Q1 since this was our first NDA filing with the FDA. Our burn rate has remained in the range throughout '15 in between $5-7 million per quarter. Looking to the 12-month results, net loss for the full year 2015 was $54.7 million, or $7.42 per share compared to 2014 of $24.5 million and $10.27 per share. Again, one of the key drivers was this non-cash adjustment to fair market value of the warrant liability on our balance sheet. Our cash position at 12/31/2015 was $51.3 million. That's cash, cash equivalents and marketable securities. And as Travis alluded to, on February 9th, we announced the closing of the offering of the $86.25 million of 5.5% senior convertible notes, which will come due 2021. Net proceeds from that offering were $82.8 million of which $18.6 million were used to repay our term notes. On a pro-forma basis, combining those proceeds with our $12.31 cash balance, we would have a balance of a $115.5 million. We believe this positions us well to continue advancing our product pipeline, as well as begin the launch of KP201/APAP. So, with that I'll turn it back over to you, Travis.

Travis C. Mickle

Thanks, LaDuane. As I mentioned previously, KemPharm is preparing extensively for KP201 with acetaminophen's upcoming PDUFA date of June 9. At the time of approval, KemPharm will be informed of the schedule that the FDA recommends for KP201 with acetaminophen. As you may recall, based on the compelling data, we requested a schedule three from the FDA, while all opioids in this class are the more restrictive schedule two. Once approval occurs, that scheduling recommendation is provided to the DA in order to ultimately write that recommendation into law. In the past this process have been quite variable, but with the recent passage of a new law, this process is now shrunk down to approximately three months. And that three-month timeline typically goes of the post-recommendation from the FDA. With that in mind, KemPharm has adopted a dual path approach to the commercialization with a focus on preparing internally to launch the product, while at the same time discussing the possibility of a partnership. And to clarify, we're not choosing a path in which we will follow-- we have chosen to take both paths. And should the appropriate offer that would come with the right commercial partner present itself, at that point we would be faced with the choice. The choice, as it exists today, is to commercialize the product fully as exists here with KemPharm. Until then it is business as usual. There's Tracy and her growing team will be focused on KP201/APAP, followed by KP201/IR, KP511, KP415, and so on. With that in mind, I would like to turn it over to Tracy Woody, our chief commercial officer to provide you with an update on our commercial plan.

Tracy Woody

Thank you, Travis, and good afternoon everyone. As Travis mentioned, with the positive news on the priority review, and the PDUFA date set for June 9th we have accelerated our timeline quite a bit in several areas, including some key additions to the KemPharm management team. Our first hire was Nick Holsam, who is Senior Director of Commerical Strategy and Market Access. Nick brings over 15 years of successful industry experience to KemPharm. His unique combination of startup biopharmaceutical, managed markets, and service provider experience, combined with his broad therapeutic background is a great fit for KemPharm at this stage of the company's fly cycle. On the marketing side, Mike Wasyluk joined KemPharm as the Director of Product Marketing. Prior to joining KemPharm, he successfully commercialized and managed multiple GI products at Salix Pharmaceuticals. A particular value to KemPharm is Mike's experience as a product manager at Victory Pharma where he marketed a portfolio of opioid and non-opioid pain therapies.

Finally, Matt Casbon joined KemPharm in February of 2016 as the Vice President of Marketing. Matt brings more than 20 years of marketing and sales experience to KemPharm. Matt most recently served as the Executive Director of Marketing for Chimerix, a startup biopharmaceutical company. Prior to joining KemPharm, Matt led the brand marketing team as the Senior Executive Director of Marketing at Salix Pharmaceuticals, a specialty pharmaceutical company.

During his time at Salix Matt was responsible for a portfolio of 15 promoted brands that included several successful product launches and key acquisitions leading to the sale of the company in April of 2015. These new commercial hires, and the addition of several agency partners in advertising, medical communications, and publication planning, trade and distribution, and market access have helped us accelerate our planning. We have initiated several projects related to product positioning and messaging, as well as pricing and payer contract strategies. Over the prior 12 months we have conducted quantitative and qualitative market research with prescribing physicians and completed two rounds of payer research. Since last spring, we have specifically engaged with payers from commercial Medicaid and Medicare plans to determine potential formulary tier status and control under a number of pricing scenarios.

Understanding how to position and price KP201/APAP in the crucial managed markets environment will build a foundation for successful launch. And we have ongoing analysis to improve our probability of success. These insights will guide our commercial build out plan as we prepare for potential launch in the first quarter of 2017. This of course, will all depend on the positive outcome regarding FDA approval and timely scheduling by the DEA so we can proceed to final steps in manufacturing, including product packaging and distribution. Giving this growing public health problem of abuse and misuse of prescription opioid products, we believe the priority review granted by the FDA for KP201/APAP is very well-timed. While there are a number of abuse-deterrent extendedrelease products, there are no FDA approved immediate release hydrocodone/APAP products available. As IR hydrocodone APAP products are far and away the most prescribed opioids with over 90 million prescriptions written in 2015, there is a real unmet need for an abuse-deterrent alternative in this product category. According to our market research, physicians and payers are extremely interested in the prodrug, or the ligand-activated therapy technology in KP201/APAP, and believe this new molecular entity to potentially fill in an important void in the current market. Physicians and payers are both very interested in the potential of what the prodrug KP201 offers, specifically that it's designed to release the hydrocodone component after it is metabolized in the GI tract following oral administration. Given that oral ingestion of prodrug was required to release the active ingredient, there's potential for resistance to alternate non-oral routes of abuse, like smoking, IV, and intranasal. They believe the prodrug approach may offer meaningful difference from the formulation-based abuse-deterrent technologies employed in the extended-release opioids on the market today. Payers have highlighted some important differences between the extended-release of opioids for chronic pain and the immediate-release products for acute, short-term pain. In our research, they have suggested that they were less willing to manage a short-term 14-day prescription of a 4 or 6 tablets a day where we see price ranges from approximately $1.65 a tablet to $2.33 a tablet for some of the branded IR products like Vicodin. A newer branded IR product they recently launched appears to have a price of about $4.25 to $6.38. Compared with the extended-release opioids range from approximately $2.70 to $34 a tablet depending on the dose's strength. One of the things to note is that this is a new molecular entity and there is a potential that there will be no AB-rated generic equivalents available for substitution. Based on these market dynamics in our research we feel confident our developing pricing strategy will align favorably among stakeholders.

Recent survey data also suggests that hydrocodone IR products may be a gateway product leading to the non-medical use of other prescription opioids and illicit drugs. The potential for KP201/APAP to be the first and the only IR hydrocodone APAP to assist in deterring abuse, misuse, and aversion, once physicians make the choice to prescribe is very attractive for physicians and payers alike. We are currently segmenting prescribers of our opioids and evaluating the potential sizing of our core field sales and managed care teams. Generally speaking, just over 12,000 physicians, all specialty defaults of eight through ten prescribe about 30% of the total hydrocodone/APAP prescriptions. This work should be completed by the end of the first quarter of this year. We are engaging with key opinion leaders and patient advocacy groups in the pain management space, and plan on interacting with key target audiences at some of the upcoming meetings, including the American Pain Society meeting in May and the international conference on opioids in June, which will be on the eve of our PDUFA of June 9.

In summary, we're pleased with our potential target audience's reactions to the KP201/APAP product profile and acknowledgment through the priority review designation that there is a critical need in hydrocodone IR combo prescription market for a product with potential abuse-deterrent properties. We are very pleased with our recent progress in assembling a core commercial team and look forward to building out our commercial capabilities over the next few months. These efforts should put us in an excellent position as we prepare for a potential launch in the first quarter of 2017. Now, I'd like to turn the call back to Travis.

Travis C. Mickle

Thanks, Tracy. Again, as I would reiterate is in the beginning of the call, I think we accomplished some great things in 2015, and we're extremely excited about the opportunities that lie ahead for us in 2016 and 2017, and beyond. And certainly, now would be a great time that we could actually turn it over to the Q&A session for this call.

Operator

Ladies and gentlemen, if you have a question at this time please, press star then one on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue please, press the pound key. Our first question comes from the line of Tyler Van Buren with Cowen and Company. Your line is open.

Tyler Van Buren

Hi. Thanks. That was great detail on the commercialization strategy, but wanted to get a little more information on the potential poof-of-concept data that we would be getting later this year on KP511 and KP415. Just wanna know what we might see when they both report out? Thanks so much.

Travis C. Mickle

Sure. I'll start with KP511, since this is the first molecule that will actually have proof-of-concept on in the second quarter of this year. For that one we are looking at the prodrug to affectively release the hydromorphone, as well as the properties of the prodrug. So, i.e., how much gets in systemically, what other metabolize may form. From that data we'll be able to determine about roughly 90% of the development path remaining for that particular compound. In this particular case, we are going into that study with an IR product that we will eventually have to convert that, using formulation approach, to an ER product. For KP415, it's a little different. The prodrug itself already inherently has an extended release profile. So, we're looking at head-to-head comparisons of our product and the release of methylphenidate from that. Now, compared to say Concerta, Ritalin, or some other long acting methylphenidate based product, as well as comparisons to the IR methylphenidate. Again, we're using this as a reference as we did during our development time on Vyvanse in order to really tease out what benefits there may be with this extended release opioid, in this case methylphenidate. On top of that, we also will be looking at the predictability, or the variability of the pharmacokinetic profiles from subject to subject.

Operator

Our next question comes from the line of Randall Stanicky with RBC Capital Markets. Your line is open.

Randall Stanicky

Hi. Great. Thanks. It's Ashley Ryu for Randall. Thanks for taking my question. I was just wondering, how are thinking about the opportunity for a KP201/APAP depending on the scheduling? So, how should we think about the different opportunities if it were schedule three versus schedule two? And can you provide any updated thoughts around the label? Thanks.

Travis C. Mickle

Sure. I'll start and I will actually turn it over to Tracy to discuss in more detail. I think again, there's a lot of evidence here that the difference between a schedule two and a Schedule 3 as far as the convenience to prescribe the ability to call in scripts, the ability to prescribe is pretty great. Again, patient access being a key advantage of being a Schedule 3. For the most part all of our planning and manufacturing plans, commercial plans have been focused as if this would be a Schedule 2, which I think is the conservative thing to do here, because the opportunity only grows if it's a schedule three. Tracy, do you have anything else to add to that?

Tracy Woody

No. I think that covers it all, thanks.

Randall Stanicky

Great, thanks.

Travis C. Mickle

And I'm sorry, what was the second part of your question?

Randall Stanicky

Yeah. I just wanted to know if you had any updated thoughts around the label, but --

Travis C. Mickle

Sure. I mean, our thoughts on the label have not changed. Again, we feel very confident about the Category I and II language that we would receive about the abuse-deterrent properties preventing extraction and tampering, as well as the pharmacokinetic parameters that we've seen with the molecule. As far as a Category III, I think there's great evidence to show that the pharmacokinetics have mirrored the pharmacodynamics here and that there's meaningful information that needs to be informed on the label. Just given that we didn't meet the primary endpoints of Emax in the Liking scores, which I think in this particular case because they are occurring at drastically different times is not meaningful, but just because that's different than the current guidance, we're less confident in our abilities to receive that language.

Randall Stanicky

Got it. Thank you.

Operator

Thank you. Our next question comes from the line of John Newman with Canaccord. Your lime is open. If your phone is on mute please, unmute. As a reminder, ladies and gentlemen, if you would like to ask a question at this time, please press star and then one on your touchtone telephone. Our next question comes from the line of Rohit Vanjani with Oppenheimer. Your line is open.

Rohit Vanjani

Hi. Thanks for taking the questions. So, just remind me again, if the FDA comes back and recommends Schedule II, can you launch with that schedule two mid year and then still negotiate with the DEA in the background, does that process have to happen with the DA before you can launch?

Travis C. Mickle

So, because this is a new chemical entity, or new molecular entity, the FDA actually determines what he schedule would be. It's called a recommendation, but that recommendation is never been changed or overturned by the DEA. They don't have a review division to do so. So, once that goes into place there was new legislation approved back in November that mandates the initial market approval with that new schedule has to be made within three months of approval of the product. Now, eventually that may take longer to get the final approval, but at that point we can start to ship the product, work on our final label, get everything prepared. From there we will still have some lead time in order to you know, get things through the distribution chain, as well as train the sales staff, get the MSLs up to speed, meet with pairs. Because until then you don't have your final label. So, essentially the point of the final DEA schedule is when we would have our label to work from.

Rohit Vanjani

So, once the FDA deems it's Schedule II or Schedule III that is final? There is kind of no negotiation with the DEA to change it?

Travis C. Mickle

There is not.

Rohit Vanjani

Okay.

Travis C. Mickle

We can go back with more data to request a different schedule at some point, but request would go through the DEA.

Rohit Vanjani

So, but we'll know on the PDUFA date where you're gonna probably settle out?

Travis C. Mickle

That's right. Sometimes the recommendation comes in after PDUFA, but in most cases I've seen it comes at the time of approval.

Rohit Vanjani

And then was there, has there been any back and forth with the FDA thus far on labeling, or is it still too early?

Travis C. Mickle

Labeling discussions typically do not proceed until very late in the cycle.

Rohit Vanjani

Right. Okay. And then any word on the competitive IR front? IR hydrocodone/APAP products. I think you've mentioned Teva products. I can't remember in the last call or something like that. Is there any word on that program or any others?

Travis C. Mickle

There's no further update that we can provide. We haven't seen any additional information about that product.

Rohit Vanjani

And then, did you begin the APAP free formulation for KP201 yet?

Travis C. Mickle

Yes. And that product is still right on track for an NDA filing for next year.

Rohit Vanjani

And that's a six months study?

Travis C. Mickle

We're still in negotiation with the agency on what studies they would like to see for that. But every study we can do actually takes less time than placing the product on stability for one year, which is required for the NDA to file.

Rohit Vanjani

Okay. And then the last one for me is the current cash. I think you said it was a $115.5, how long is that good for?

Travis C. Mickle

Yeah. That's a pro-forma number off the 12/31. We expect that will take us into at least Q3 of 2017.

Rohit Vanjani

Until the Q3 '17 you anticipate to burn up $5-7 million per quarter, or there will be a ramp that starts in the second half of the year or something?

Travis C. Mickle

Yeah. That was the burn rate that prevailed in 2015. As we go towards our commercialization, towards the second half of 2016 you're going to see the burn rate increase.

Rohit Vanjani

Okay. Great. Thanks for taking the questions.

Operator

Thank you. I am showing no further questions at this time. I'd like to turn the call back to doctor Mickle for closing remarks.

Travis C. Mickle

I greatly appreciate everybody joining us for the call today. I have nothing additional to add. So, again, thank you for your time, and look forward to continuing to update you on our progress, both in the clinic and commercially in the future.

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 wonderful 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. I have no business relationship with any company whose stock is mentioned in this article.

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