KemPharm's (KMPH) CEO Travis Mickle Hosts Corporate and Clinical Update Conference (Transcript)

| About: KemPharm (KMPH)

KemPharm, Inc. (NASDAQ:KMPH)

Corporate and Clinical Update Conference Call

September 15, 2016, 08:30 AM ET

Executives

Jason Rando – IR, Tiberend Strategic Advisors, Inc.

Travis Mickle – Chairman, President and CEO

LaDuane Clifton – CFO

Daniel Cohen – EVP, Government and Public Relations

Analysts

Ashley Ryu - RBC Capital Markets

Marcus Ho - Oppenheimer & Co

Operator

Good day Ladies and gentlemen, I would now like to turn the call over to Jason Rando, Tiberend Strategic Advisors. You may begin.

Jason Rando

Thank you and good morning everyone. Thank you 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 statement 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 forward-looking statements, risks, uncertainties in the reports KemPharm files with the SEC. These documents are available on KemPharm’s website at www.kempharm.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’ll provide an update on Kempharm’s corporate strategy and clinical development pipeline, including recent regulatory events involving Apadaz. In addition to Dr. Mickle, Daniel Cohen, Executive Vice President of Government and Public Relations, will comment on KemPharm’s interactions with the FDA. And LaDuane Clifton, CFO, will provide a brief update on KemPharm’s finances. At the conclusion of the remarks, we will then proceed to a question and answer session. I will now turn the call over to Travis.

Travis Mickle

Thank you, Jason, and thanks everyone for joining us this morning. As we mentioned on the second quarter update call, we wanted to provide an update after we received the minutes from the End-of-Review meeting, as well as any relevant updates as soon as we could make that available. I’m going to start with some key updates of the announced press release. As you could see from the press release, we actually intend to begin the process of the formal dispute resolution regulatory process with the FDA for Apadaz as a follow-up to the End-of-Review meeting. If you recall, in June of this year we received a CRL for Apadaz predominately related to issues around the labeling for that particular product. Based on that CRL, we requested an End-of-Review meeting, which we discussed on the second quarter call as well. And very recently have received the minutes from that meeting. Dan Cohen will be speaking more about some of the details of those minutes.

Our End-of-Review meeting was really to focus on some of the key issues that were raised by the division, predominantly, again, around the labeling of the product as abuse-deterrent. And from that End-of-Review meeting we actually were able to understand better the division’s rationale for us receiving the CRL.

Also highlighted in our press release this morning, we are adjusting some of our product timelines after we’ve done a complete pipeline analysis of all of our potential prodrug candidates. We are right now positioning KP415 and KP201/IR as our lead product candidates in order to further capitalize on favorable developmental, regulatory, and market conditions. We are actually increasing the emphasis and spend on these particular products while we’re maintaining the path for KP511.

The commercial program for Apadaz has been suspended. The FDR process, the Formal Dispute Resolution process, will take a number of months. After that time, even if we are successful it will require a resubmission of the NDA, which would have an unknown amount of time in its review depending on the length and type of data we would have to add for that.

And so, it’s in our belief that we wouldn’t have any commercial opportunity with Apadaz for at least, the next 18 to 24 months. And as a consequence of that, much of our commercial staff has been restructured and reduced. I’d like to now turn the call over to Dan Cohen who will provide more information on the End-of-Review meeting, as well as the FDR process we intend to enter into.

Daniel Cohen

Thank you. Travis. I agree with Travis’ interpretation of the End-of-Review meeting and our outlook for Apadaz. Most importantly, the End-of-Review meeting did clarify for us the key issues that were raised by the division. We understand their rationale and the deficiencies that were raised are something that we believe can be resolved through the continuation of the regulatory process. Keep in mind that when we received the CRL it was literarily just days before our PDUFA process. The reason we requested the End-of-Review meeting was to not only to understand the CRL, but knowing that it’s part of the regulatory process, that the time prohibited the FDA from really getting into a detailed discussion with us. The division did confirm prior to the CRL that Apadaz was approvable. What we were in disagreement about was evaluation of the data in our NDA as to what constitutes abuse labeling as the label claims, specifically in Section 9.2.

The disagreement is the evaluation of the data itself as to what constitutes public health benefit for Apadaz. Because we received that draft label with approval from the agency two days prior to the completion of our PDUFA process we were not able to enter into a meaningful discussion on that provision, and that’s what we used the End-of-Review process for. The End-of Review meeting itself, the outcome, was expected and the clarity that we got from the division as to their focus on Tier 3 data, particularly in VAS scores, was what we expected. They confirmed that in the meeting, and most importantly, it was confirmed in the minutes, which are the official records of meeting that we received earlier this month.

Based on that, we have notified the division that we intend to enter into the formal dispute resolution process, known as FDRR, Federal - Formal Dispute Resolution Request. Our interpretation of the agency’s view of the overall ADF market and specifically for immediate release abuse-deterrent products figures into this. The agency has a very clear pathway available for extended release products -- it’s been travelled down, right now, seven products having received the label. The draft guidance for branded products focuses pretty primarily on those extended release products. It is those tools that the Division is using to evaluate immediate release products. That’s a function of what authority that they’ve been given by the Division.

The End-of-Review meeting also confirmed that the Division is focusing on the Category 3 tiering of the data to determine whether an immediate release opioid product is eligible for any abuse-deterrent labeling claims. There was no disagreement about the data itself in Tier 1 or Tier 2 for Apadaz, but because we did not meet the division’s interpretations of the Tier 3 labeling they are not comfortable going forward with an abuse-deterrent claim at this time.

That becomes an important part of our discussions in the FDR process with the agency. Is there an appropriate evaluation of the Tier 3 language? Is there an appropriate evaluation of the Tier 1 and 2 language? And, is the guidance as drafted both being followed by the company, by the agency? And, is the guidance itself being appropriately applied to IR products compared to [ER] [ph] products?

The FDR itself, the intent of an FDR submission, is to provide a pathway for applicants and companies that seek to resolve scientific or medical policy disputes that cannot be resolved at the Division level. That’s the point that we find ourselves at. This is a question of interpretation, evaluation of the data, and not a question of whether or not any data is missing. When we reach a point that the issue is not resolvable at the Division level, we can request the matter be reviewed at the next higher level of management at the FDA. And that’s what the FDR process is about. This review process can take as few as one, or as many as three different levels of review, and at this point we would be unable to predict how long the process will take.

Our outlook for the FDR process for Apadaz itself, we’re going to pursue the FDR to address and then attempt to resolve these disagreements over evaluation of the data with the Division’s interpretation of what is the Guidance for Industry on Abuse-deterrent Opioids Evaluation and Labeling. And also, the data itself that we provide within the NDA related to the abuse-deterrent properties of our products. The issues for the FDR process itself are solely related to the abuse-deterrent properties of the product and what constitutes abuse-deterrence in a context of the label claim.

I would note that we anticipate the process – while I said it could be, on a regulatory basis, a reasonably short process, it could require as much as 12 months to complete if it has to go through several levels of review. And what is traditional, the agency asks companies not to discuss the FDR process while it is ongoing. And we plan not to provide any updates regarding Apadaz during the FDR process itself other than to notify you once we have formally filed the FDR with the agency, which would come in the reasonably near future. And then, we will report on the result, but there will not be interim milestones.

With that I’ll return the call to Travis, who’ll discuss our prodrug pipeline.

Travis Mickle

Thank you, Dan. As I mentioned previously, we’re currently focused on both KP415 and KP201/IR as our lead product candidates. These particular programs have been elevated after a comprehensive review of our entire pipeline, looking at both the economics, the development timelines, and regulatory paths for each product candidate. We now expect to meet several clinical and regulatory milestones for both KP415 and KP201/IR by year-end, as I’ve stated earlier, as well as over the course of the next 18-24 months.

Different than we’ve discussed in the past, we are actually accelerating our investment in KP415. This particular product highlights what we feel like could be the highest value product in our pipeline. KP415 is an extended release, demethylphenidate product for the treatment of attention deficit hyperactivity disorder, or ADHD. We have seen already in animal models that seem to be very predictive from our particular laboratory that the PK data suggests that the time to maximum plasma concentration of methylphenidate after oral administration of KP415 is approximately three times longer compared to currently marketed IR methylphenidate.

We plan to have the proof-of-concept data to back this up by year-end as well. We’re additionally accelerating the development of this product and anticipate filing the IND prior to the close of the third quarter. We’re also targeting an NDA filing for this particular product in 2018, which is more than a year sooner than our prior estimates. We also anticipate, during the first half of 2017, initiating clinical studies. And as those milestones and studies start, we’ll provide further guidance as to anticipated dates in which the data would be released.

Now, looking at KP415 and why we’ve decided to accelerate the development of this particular product is really due to the several different features of both the molecule itself, as well as the market it’s in. The particular product has an extended release attribute related to its molecular structure that may allow for a more predictable therapy. For ADHD products, to understand when the product will come on, when it will come off, and how reliable that therapy will be up throughout the day is very important for the patients and parents of many patients, especially for the adolescent and pediatric markets.

This particular market is very large. In 2015, methylphenidate accounted for roughly 20 million prescriptions and $4.2 billion in sales, even with patent expirations for the several of the branded products, such as Focalin and Concerta, eroding away at some of those profits.

KP415, much like our previous experience with Vyvanse, could represent a highly differentiated product in a marketplace that does not currently have a prodrug of methylphenidate. As many of you on the call know, much of KemPharm’s previous success is rooted in the ADHD space with many of the folks here on the management team and the scientists responsible for the development of the product Vyvanse while we were at New River Pharmaceuticals. Vyvanse, as you recall, is a prodrug of amphetamine, which is the market share leader in the $15 billion ADHD market.

KP415 is conceptually similar to Vyvanse, but utilizes a different prodrug, and has a different active ingredient. Many of you may have heard me state in the past before that there are a number of patients who cannot switch from amphetamine to methylphenidate, so those patients that have only been on methylphenidate treatments have not had the advantage that Vyvanse plays in those particular therapies. We now hope with KP415 to address that marketplace.

Additionally, and this really can’t be understated given what we’re going through right now with Apadaz, is that KP415 is an ADHD product. This would be in the psychiatry division of the FDA. It’s a different division. We’re not focused here on abuse-deterrence. The product itself may or may not have a lower abuse liability than some of the immediate release methylphenidate products currently on the market, but we believe that, in fact, this could be an advantage for us while we sort out what is going on with the ADF products.

Now I will be transitioning over and discussing a little bit about KP201/IR. The product itself is the same active ingredient as an Apadaz, except now we’ve removed the acetaminophen. Our recent FDA meeting with End-of-Phase 1 was very important for us to understand what needs to be done with this particular product. And we do expect to file the IND prior to year’s-end. The data that we’ve already conducted and had referred to as the A03 data, where we took just the prodrug and compared it to just hydrocodone -- that particular data is very important here, because it already validates this particular product. Our End-of-Review meeting actually highlighted with the agency that intranasal and IV abuse of the single entity products like KP201/IR is a tremendous issue and one they’re very concerned about, and one that the data supports. A reduction in both Emax and all of our other secondary endpoints that we looked at in that study, as well as a significant reduction in the pharmacokinetic exposure that one would receive if intranasally administering the drug without the acetaminophen. So, we’re excited about the probabilities that are there for KP201/IR.

After the IND filing in the fourth quarter of this year, we’ll be initiating clinical trials in the first quarter of 2017 and anticipate a potential NDA filing in 2018 for that particular product. We have previously guided towards an NDA in 2017. That timeline has been kind of extended, again, due to the enhancement or the advancement of KP415 with our resources now applied more generously in that area, as well as to allow much of the regulatory uncertainty that we’re currently experiencing with Apadaz to kind of play itself out so we can see where this product sits before doing the more significant clinical studies and the more expensive ones. We can still move it ahead while we wait for that clarity to happen.

Despite all of this, KP201/IR still represents a unique product that doesn’t exist right now. It’d be the first abuse-deterrent IR hydrocodone product, as well as the first hydrocodone IR product without acetaminophen.

And then, just briefly, I’m going to touch on KP511. As I said before, we’re maintaining our investment in this particular program. Many of you have heard me speak on this in the past. We’re extremely excited about the potential that this prodrug can bring. This is a prodrug of hydromorphone and we intend to actually develop it as an extended release formulation. The previous data that we just reported on the proof-of-concept study actually showed that KP511 effectively released hydromorphone from the prodrug while no systemic prodrug was found in the circulation. This can be very helpful when you talk about our development timeline. We also saw a very similar safety profile for KP511 versus Dilaudid; but, one of the issues with that is that the prodrug itself is actually immediate release. So we will have to add an extended release technology in order to make this product more like the product Exalgo in the extended release hydromorphone products. So, in part with that, we have currently undertaken a couple of different approaches with extended release technologies and now realize that’s probably going to take a little bit longer than we originally had proposed.

Additionally, KP511 has a number of studies related to overdose, lower exposure at high doses, as well as lower respiratory depression is really what I’m referring to by overdose. And on top of that, we also see interesting feedback on opioid induced constipation. So, those additional clinical studies that we intend to do would require our extended release formulation. And because of that we are now looking to file the NDA for that particular product in 2019.

I’m now going to turn to discussion that I mentioned earlier about our commercial operations. Just given our focus now on our development pipeline and looking at specifically KP415 and KP201/IR, given what we have in front of us with Apadaz as far as the FDR process that Dan outlined for everybody this morning, we’ve decided to suspend our current commercial operations. As a result, we’ve eliminated several of the positions, including that of Tracy Woody, our Chief Commercial Officer, and Matt Casbon, our VP of Marketing. Both individuals have added a tremendous amount of value for us here at KemPharm and we certainly wish them all the best in their future endeavors. You know, this always is a very difficult decision for any organization to make, but again, one where we wouldn’t have a commercial product for at least two years I think aligns with what we want to do. And now we can make that investment back into our development pipeline and things that can add more value in the near term.

I’m now going to hand it over to LaDuane, who’s going to speak to our – just a brief update on our finances. Certainly something that’s helping us make these important decisions today. LaDuane.

LaDuane Clifton

Thank you. Travis, and good morning everyone. As Travis has outlined, we have a robust pipeline with many opportunities for value creation. KemPharm has a strong balance sheet and is well-positioned to invest our resources and bring these opportunities to fruition. As previously noted in the Q2 results call and press release, as of June 30th, we had total cash of $102.6 million, which is comprised of cash, cash equivalents, restricted cash, marketable securities and long-term investments. Based on our updated corporate and clinical strategy we anticipate that current cash on hand will fund our operations through 2018. Our balance sheet places us in a position of strength, but we’re always assessing opportunities to strengthen it where it might be advantageous. Now I will return the call back to Travis.

Travis Mickle

At this time this concludes our call. We would like take some brief questions from some of the analysts [indiscernible].

Question-and-Answer Session

Operator

Thank you. [Operator Instructions]. And our first question comes from Randall Stickland [ph] from RBC Capital Markets. Your line is now open.

Ashley Ryu

Good morning, guys. This is Ashley Ryu on for Randall. Just want to start by touching on pipeline. So, for KP201/IR, you mentioned that you believe the data from the KP201.A03 study kind of aligns with FDA’s criteria for abuse-deterrent labeling. I guess - can you clarify what you’re looking for in terms of allowing kind of the current issues within the IR abuse-deterrent opioid space. To clarify, I know you did touch on it a little bit, but I guess my question is specifically given the lack of APAP in KP201/IR, would you expect to see a better result in the likability separation than what we saw with the KP201/APAP?

Travis Mickle

Well, that’s the nice thing about that particular data with A03 is that in fact, we’ve already seen that. The study was initially just designed as a PK study, but because of a lab mix-up, they actually doubled the number of subjects in which we were able to measure Liking. And Liking here has showed a six-point difference, and that was a statistically significant difference in Emax, Drug Liking. We didn’t take some of the other measures that right now the agency is also looking at as far as High and Take Drug Again. And that’s why again, we’ll have to repeat the study. We’ll have to do it as a true human abuse potential study, but we’ve already had great indications that in fact, the issues that were related to Apadaz just don’t seem to be present with KP201/IR. And we should see those differences in Emax, Drug Liking, High, and Take Drug Again.

Ashley Ryu

Okay. Got it. And just in terms of KP511, how many additional kinds of studies are you planning? You mentioned that that was the part of the reason of the delay for the NDA filing.

Travis Mickle

Well, one of the unique attributes that we saw with KP511 preclinically is this ability to saturate enzymes that break it down at overdose levels, or supertherapeutic doses. We currently are investigating that particular property with KP201 itself. So, once those studies have concluded, and we’ll see what the data looks like, and look at maybe at what the relationship between dose and respiratory depression may be, then in fact, we can go back and start a particular study with KP511.

The other one I mentioned was opioid-induced constipation. We’ve had a readout in the past with the preclinical data, and now some of our metabolic data is also supporting this -- is that in fact, we may not cause as much opioid induced constipation with KP511. So, there’s a couple different models that we’re exploring there that would need to be initiated and completed for us to even contemplate, you know, some sort of label claim in that direction.

Ashley Ryu

Got it. Thank you very much.

Operator

Thank you, and again, [Operator Instructions]. And our next question comes from Marcus Ho from Oppenheimer & Co. The line’s now open.

Marcus Ho

Hi, thanks for taking the question. Just a quick question just in regards to FDRR process for Apadaz. I know you guys can’t talk too much about the actual process, but have you guys looked at any past maybe comps or precedent drugs that kind of went through a similar process and kind of gaining a read-through from those examples?

Daniel Cohen

We certainly have, and you know, the FDRR process is as much a part of the regulatory process as a pre-NDA or NDA process itself. So, it’s not unusual in our view to go down it. We have, functionally, a couple of things that you should keep in mind at 60,000 feet if you will, Marcus. The draft guidance – or the guidance for branded products was issued and as an industry and as a company we interpreted those guidance in developing the Apadaz NDA. The Division has interpreted and valued aspects of the guidance differently than we had anticipated going into panel, and that was the function of the End-of-Review meeting – is to clarify what was the evaluation and the important data points that the Division had, and where the Division felt that they were restricted by the tools that the FDA itself had given the division to operate under. We have a very good relationship, I would say, with the Division, and we had very cordial and frank discussions. Because we have a difference in evaluation, and the Division can only go as far as it feels it can in the interpretation the FDRR process will allow us to raise those scientific disagreements on evaluation and understanding of the guidance to a higher level in the agency, which will have the ability, if they desire, to either validate the Division’s view or validate the company’s view, or more likely – in previous cases, I can’t speak to ours obviously because we haven’t started it, but in the previous cases they tend to find some form of a middle ground. All of that becomes very relevant to us.

Whether it ultimately leads to a label that we find acceptable for Apadaz that we would agree to, but it’s just as important for us to get a firm sense of what the Division will be looking at in the KP201/IR NDA that we intend to file. We already have a much better sense today after the End-of-Review meeting of the endpoints that we need to meet. And when we do those trials that will inform us what to take forward. The FDRR process I think, will give us final clarity on bringing 201/IR forward just as it will give us clarity on Apadaz. The short answer would be, if we follow the NDA for 201/IR as the result of the FDRR process you can anticipate that we would be very confident that we’ve met the division’s criteria and we’ll have a much better understanding. Remember, this is a relatively unique situation because this is the first in class product for IRs -- what will be the first. There will be others that will follow, but no one’s trialed this path before, so we’re different than the early space, and we’re certainly different from some of the other drug space as well.

Marcus Ho

Thank you.

Operator

Thank you. And this does conclude our question and answer session. I would now like to turn the call back over to Dr. Mickle for any closing remarks.

Travis Mickle

I’d like to thank everyone again for joining us. Clearly, I believe strongly that this re-review of our pipeline, the efforts we’re undertaking with Apadaz are really something of value for the organization. Again, focusing on a product where we’ve been successful in the past, where we’ve seen the great potential for the market, as well, as you know, again, allowing these abuse-deterrent questions to play out will be very important for us in the future. So, we continue to look forward to updating you on our progress, and thanks again everyone.

Operator

Ladies and gentlemen, thank you for participating in today’s conference. This concludes today’s program. You may all disconnect. Everyone have a great day.

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