KYTHERA Biopharmaceuticals' (KYTH) CEO Keith Leonard on Q2 2014 Results - Earnings Call Transcript

KYTHERA Biopharmaceuticals (NASDAQ:KYTH)

Q2 2014 Earnings Conference Call

August 7, 2014 16:30 ET


Heather Rowe - Director, IR

Keith Leonard - President & CEO

John Smither - CFO


Chris Schott - JPMorgan

Bill Tanner - FBR Capital Markets

Seamus Fernandez - Leerink Swann & Company


Welcome to the KYTHERA Biopharmaceuticals’ Second Quarter 2014 Operating Results Conference Call. (Operator Instructions). I would now like to turn the conference call over to your host, Ms. Heather Rowe, 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, 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 in 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?

Keith Leonard

Thank you Heather. Thank you for joining us this afternoon. Our call today is organized as follows. First I will provide an update on the quarter and then I will turn it over to John to discuss the financial results. Next I will provide brief closing remarks before opening up the call to Q&A.

Q2 was a productive quarter for advancing ATX-101, our potential first in class facial injectable drug for the reduction of submental fat. Notably we achieved important regulatory milestones, submitting our new drug application or NDA to the FDA on May 12. On July 10th we announced that the FDA had accepted the NDA and assigned a Prescription Drug User Fee Act, or PDUFA, action date of May 13, 2015. We also learned that our review division, a division of dermatology and dental products plans to hold an advisory committee meeting on the ATX-101 application during the review. As you may know ATX-101 is a new chemical entity or NCE, for first in class use and so we were not surprised by the plans for an advisory committee.

In fact we have been proactively preparing for one. We know what it takes to prepare for success, key members of our clinical and regulatory team, including our CMO, Frederick Beddingfield have relevant and recent experience having previously being involved in positive advisory committee for aesthetic products, including Latisse and Voluma, both of which went on to approval. We feel confident that we know how to prepare and we will be ready.

With these important regulatory milestones completed we increasingly turn our attention towards planning and preparation activities to ensure commercial readiness. If approved we believe ATX-101 will be an attractive solution for the reduction of submental fat representing a new product category within facial aesthetics.

This is an especially timely against the backdrop of an increasing recognition of the importance of pan facial aesthetics with an emphasis on the totality of facial harmony. To-date there are no approved injectable drugs to contour the submental region. With the PDUFA target insight we continue to advance the momentum of our launch readiness, we plan to conduct a training led launch with medical affairs the forefront of this effort. We intend to deploy the medical affairs team early to ensure we’re prepared and then we’re grounded in science based discussions with physicians.

Engaging the medical community is of utmost important; to achieve this we will continue to build our medical affairs infrastructure including our field based medical affairs team. We have our first field base medical science liaison in place now with plans to increase significantly by the end of the year. We will deploy the medical affairs team to ensure we’re able to engage and support physicians in understanding the science underlying ATX-101.

We’re likewise focused on our commercial readiness which is well underway. We continue to build our commercial infrastructure to ensure that we’re prepared for successful commercialization upon potential approval. We benchmark leading injectable aesthetic product launches and recognize that the key drivers to their success have been a focus on key opinion leader development and investment in physician training. In addition we want to ensure that physicians and patients have a positive early experience with our product. When we take a step back we know that 2015 will be our build year to set the foundation for a successful 2016 and beyond. Our long term aspirations for the success of ATX-101 hinge on laying the right foundation, and so it is paramount that we get it right early.

We have initiated detailed launch planning activities including promotional strategies for both physicians and consumers. As we have said before we will target high value, high volume injectors as identified by our market research. Of course while we will continue to refine our sales force sizing we believe we can efficiently target physicians through an initial specialty sales force of around 60 to 80 reps, with success we would plan to grow this overtime as we broaden our reach to more physicians.

We will continue to add key talents to our already exceptional commercial team. I have tremendous confidence in this team and their ability to launch ATX-101 successfully.

Now a word about our preparations for ATX-101 outside of the U.S. As we have noted before we are taking a systematic approach to evaluating the relative attractiveness of various markets around the world for the opportunity of ATX-101. We are undertaking a territory by territory analysis to determine where, when and how to best commercialize. In addition there will be a natural stagger to our filings as we nationalize our core NDA dossier. We look forward to announcing multiple ex-US filings by the second quarter of 2015.

In addition to the activities outlined earlier, we’re also highlight focused on readiness efforts for preapproval inspections both here and in our contract manufacturers. All of these efforts are being led by the extremely capable and experienced executive team we have assembled. I’m incredibly proud of our ability to attract top talent and I’m pleased with the quality of team we have built and continue to build across all functions of the company.

We’re investing in our team and infrastructure at a measured pace and in fact as a result of our natural company growth we outgrew our last office facility and recently moved to new office.

I believe I speak on behalf on all of our employees when I say it's an exciting time for us on all fronts as we continue to grow and achieve key milestones. In short we’re on track in our overall preparations to take the company to the next level.

With that I will turn the call over to John.

John Smither

Thank you Keith. During the quarter we continued to target our investment and resources to advance ATX-101 through the regulatory process and towards commercial launch as well as progressing filings outside the U.S. We know the investments we make today will enable our ability to commercialize ATX-101 if approved. As of June 30, 2014 cash and cash equivalents and marketable securities what I will collectively call cash were a 134.7 million. This compares to 75.7 million of which 11.1 million was restricted at June 30, 2013. Our net loss was 19.5 million for the second quarter of 2014 which compared to 12.3 million for the second quarter of 2013. I won't review this quarter’s R&D and G&A expenses today on the call since they are detailed in the press release we issued this afternoon. I will provide some context though on general trends.

While we’re not ready to provide detailed guidance we do expect our overall expenses will increase as we continue to prepare for potential approval in the U.S. and file regulatory submissions in other territories. As we mentioned during our last conference call we’re well into our corporate launch preparations which is resulting in substantial activities in all areas of the company. This includes continued hiring for example field based medical affairs personnel, marketing staff and sales leadership and preparation for potential commercialization. In addition we’re continuing to build the IT infrastructure necessary to support the overall launch and field based personnel.

As detailed in our 10Q file today we ended the quarter with 83 full time employees which is a significant increase from the 64 employees we had at the end of 2013. Now I would like to discuss in a little more detail about the increase in R&D. As a reminder major components of our R&D cost are personnel cost including non-cash, stock based compensation expense, preclinical studies, clinical trials and related manufacturing materials and supplies, regulatory affairs activities, building of our medical affairs function and fees paid to consultants and other entities that confect the certain research, development, and regulatory activities on our behalf.

We expect our R&D expenses will continue to increase modestly as a result of regulatory affairs activities, advisory committee preparations, continued development of our medical affairs function and submission in other territories throughout the world resulting from the acquisition of rights to ATX-101 outside of the United States and Canada.

Shifting to general and administrative cost, I would also like to highlight these costs consist of personnel cost including non-cash stock based compensation expense and outside spend associated with the marketing and information technology departments as well as executive accounting and finance, legal and human resources. Looking ahead we expect our G&A cost will rise as we increase our headcount and expand our commercial staffing, establish company infrastructure and other activities to support our company growth as we prepare for potential commercial launch of ATX-101.

As stated in our press release the company had net use of cash of 16.7 million in the second quarter and we reiterated our guidance that we expect in 2014 with a year-end cash balance of between $90 million and a $100 million. Given what we know today and assuming a first pass FDA approval and our accepted PDUFA date we continue to expect our existing cash will allow us to fund our operating plans through at least the next 12 months, and more specifically will get us through the FDA’s decision on approvals.

With that I will return the call back to Keith.

Keith Leonard

Thanks John. In closing our team continues to deliver against our time table to ensure that we’re ready for potential approval of ATX-101. We know we have a lot of work ahead of us but I’m confident in our team’s ability to deliver. We will make additional progress in the third quarter and we look forward to providing you an update during our next conference call.

With that thanks to all of you 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


(Operator Instructions). Our first question or comment comes from the line of Chris Schott from JPMorgan. Your line is open.

Chris Schott - JPMorgan

Just had two questions for you guys. First, what are you expecting in terms of the focus for that advisory committee meeting for ATX-101? And the second question is when we think about the ex-U.S. markets, can you just elaborate a little bit on how you're prioritizing here? Is it driven by ease of commercialization, ultimate peak sales potential or is there other factors involved? I'm just trying to understand a little bit as you're going through that process, how you're selecting markets. Thanks very much.

Keith Leonard

As far the panel focus, I mean basically we’re focused to be able to answer traditional panel questions. What I mean by that as a sponsor demonstrated the products efficacy; we think we have of course, as a product, as a sponsor demonstrated the product’s safety. We have seen a very consistent record of safety and tolerability across our phase 2s and phase 3s. And then lastly, which is really a question of opinion for the panel is the risk benefit ratio justify approval and that’s something we feel comfortable about but of course we will be designing our panel preparations in order to convey all the reasons behind our confidence there.

As far prioritizing ex-U.S., clearly peak sales potential is one very important factor. Another one though is ease of entry and easy of entry could come in a couple of categories literally commercial ease of entry and the other one could be regulatory, there are some territories you know that not only require a CPP but in some territories they require some local trials and therefore local knowledge and connections are probably pretty important in being able to execute there well. So, given limited bandwidth of the Company, both financially management et cetera we want to make sure we focus on the combination of high promise relatively attractable markets and that we use other means and other tactics to gain entrance into other markets that might be very attractive but more difficult and that balance will drive our decision making around prioritizing ex-U.S.


Thank you. Our next question or comment comes from the line of Gary Nachman from Goldman Sachs

Roger Kumar - Goldman Sachs

Hi, this is Roger Kumar. Thanks for taking the question. Just had one quick one. First on, just wondering if you can give a little bit more granularity maybe on the cadence of the commercial build out through May and there's one follow up after that, too.

Keith Leonard

I’m sorry the commercial build out between here and May or after--?

Roger Kumar - Goldman Sachs

Between here and May. Between here and May.

Keith Leonard

Of course we will be doing a lot of internal preparation on the marketing side around positioning, message et cetera, all getting ready for an approval date. Those things can’t leave the premises of course; we can’t give promotion before the product is launched. We will be preparing train materials as we mentioned because we would like to have a training led launch and then during the third and fourth quarters of this year we would like to hire our sales leadership the first couple of levels and give them a chance to become fully familiar with the products, help refine our targeting and deployment plan and then as we get closer to May, the ideal would be to be able to recruit, identify, recruit and even put contingent offers in place for a vast majority of our sales force such that upon approval it should happen around mid-way, the PDUFA date. We will be able to trigger those contracts and then have the rest come over. So between here and there additional market research positioning traditional internal preparation especially in training and ten the build out of the sales leadership layer by layer.

Roger Kumar - Goldman Sachs

And also, do you guys have any updated thoughts on the potential pricing this product could command when you get on the market? Thanks.

Keith Leonard

No new updated information in our thinking, we’re continuing to do market research with consumers. We believe this is a high value product that promises surgical like outcomes but delivered via a needle in a non-surgical setting. So it's a unique product, we need to make sure that we understand it's value fully and then of course before we declare price on what we control which is a vial price, we need to do additional modeling and research to really sort through what we think real clinical experience will look like. The clinical trial experience is of course extremely valuable but we’re going to have to model what we think real commercial practice will look like. So those are the components of work left to be done.

And the only thing I would add to that Roger is we think the durability features of this product also have a value proposition to the consumer that we’re also trying to understand well to make sure we price it right.


Thank you. Our next question or comment comes from the line of Bill Tanner from FBR Capital Markets. Your line is open.

Bill Tanner - FBR Capital Markets

Couple for you, Keith. I think you made a comment that 2015 was really going to setting the basis for 2016 and beyond. And just thinking about, how do you -- for a generic derm, how do you think about what the uptake would look like for an individual practice just in terms of, I would assume that initially they'll try the 101 in a few patients, and it's going to take some time to see what the response is. So I'm assuming that's kind of what you were inferring about trying to get some traction, but really maybe the real uptake is going to occur later in 2015 or 2016 and beyond.

Keith Leonard

It's a great point both at the individual practice level and then there is some kind of stagger timing stagger features that I will walk you through for the overall launch. Of course if we’re lucky enough to get a mid-May approval. Commercial product is not available right away; one of the last things as you know that gets approved is your labeling. So once you’ve your labeling and your package insert done you got to get it manufactured and proofed and then over to your final manufacturer who does the package build up and that can take 3, 4 weeks before you even have a commercial product. In the meantime I mentioned that we are planning an approach for contingent offers of reps. Once those reps give notice which generally takes 2 to 3 weeks we then have to go through a rep training which can take 4 to 6 weeks between at home study and then study on the premises here before even able to unleash them into the field and then of course they are not productive the first day the arrive in the field because they have to do what’s called profiling of their assigned physician. Make sure they understand where the physicians are, get to know the staff and make sure that the targeting that the marketing team has given them matches the field reality.

So there is several sources of natural stagger before the product gets out there and then you get to the thing you’re talking about on a per clinician basis. Even if we target the high prescribers within facial injectables, of course there is a natural trial period at the beginning for those 75 or 80 that have been clinical trials for us that’s perhaps not such a big issue but for the rest of the physicians in this core group yes they are probably going to select a couple of patients, see how it goes. This is of course after training, one of the other gating features is we have got to get these physicians through training and we will try to be as expeditious as possible but still focused on high quality interaction with them.

So then you have your natural stagger for office. So before a physician would prescribe to 10 patients in a week we’re presuming they would first do two patients in a week, make sure they understood how the product was working, make sure they maximize their patient comfort, management techniques et cetera and then progressively build from there.

Now none of those things do we think are very specific to ATX-101 around any features of ATX-101, we’re just -- as we get to detailed planning and try to turn that into our own revenue models we’re coming to realize that this is I guess where the shape of most S-curves comes from in launch planning. We’re willing to make sure we spend some extra weeks to do it absolutely right because we’re really focused on 2016, 2017, 2018 the long term healthy and viability of this product is going to have a lot to do with how we launch and so we would rather be patient and focused on a high quality launch than pushing too hard. So that’s kind of the detail behind my comment of a build year. Really I think it's consistent with our corporate personality as we would rather take a little extra time if required to get it right and have high quality execution.

Bill Tanner - FBR Capital Markets

And then you also made a comment about the medical affairs team. I think you said something to the effect that they would help the physician to understand the underlying science. And I would just think that that wouldn't be such a stretch for people to really understand how 101 works. But I guess part of it too, though, is understanding the basis for it, but it's also setting the expectations for what to expect on a physician front, as well as on the patient front, just in terms of --

Keith Leonard

Sure. So, managing patient expectations that will be something that probably is done more in engagements post-launch but pre-launch we want to make sure that the physicians understand the size and find the product, that they remember in most cases the anatomy of the next because there will be some important features in the anatomy of next, where to inject, where not to inject et cetera that relate to the eventual product launch. So we just want to make sure that our initial interactions with physicians are who we’re as a company. They are science based, they are credible and that we’re leading with science and data and eventually we will get to the commercial sale which will include things like the sales reps would handle. How this products fit into the office environment, how they fit into the flow of their existing patients et cetera.

So it will be a combined effort in the end of course but the MSLs will handle the -- all the science based communication.

Bill Tanner - FBR Capital Markets

And then maybe one last question. If you do get a first pass approval, what would be the major either medical or plastics or aesthetics meetings, say, over the second half of 2015 that you could avail yourselves of, just in terms of really trying to make a splash with the product to raise the awareness?

Keith Leonard

Well your Summer AAD that happens which is a decent meeting. It's not huge, ASDS which happens in the fall, that’s an important meeting, you’ve ASPS Meeting, the plastic surgery meeting that happens in the fall. So there is a couple of good meetings especially among ASPS and ASPS are good meetings especially along those high volume core prescribers.


Thank you. (Operator Instructions). Our next question or comment comes from the line of Seamus Fernandez. Mr. Fernandez, your line is open.

Seamus Fernandez - Leerink Swann & Company

Just a couple of quick questions. Can you maybe walk us through what you think the key point’s preparation are going to be for the panel? What do you think would be the -- as you work through thinking about the key points of the panel and look at other recent panels, what would be the key features that are worth thinking about? And then in addition, would you guys mind just kind of giving us your general thoughts as you see the evolution of the market today towards some longer-acting therapies, what the value-add opportunity of the durability of ATX-101 is and how we should maybe think about pricing in the context of the current market. Thanks a lot.

Keith Leonard

On the first question a we mentioned we have been under preparation for a while now for potential question from the panel and ability to predict exactly what a panel may ask is pretty limited. So believe it or not one of the key activities you have to be prepared is to explain almost all angles of both efficacy and safety in response to questions that you’re going to get live from the panel. So we have been focused on a number like having approximately 1000 slides ready in a computer system that can be hit up, brought by keyword that have appropriate data cuts that are all contained in the NDA commission.

And that basically allow us to convey the totality of the safety profile, the totality of the efficacy profile, the consistency across multiple trials. Far beyond what is just the initial or the primary end points in the Phase III data. We think those speak for themselves, they are relatively simple to absorb. It's all the other questions that could come up and then I guess -- of course these come up from the panel members and not necessarily from the FDA. So really it's looking at prior panels, making sure we understand the kinds of questions they have.

You know we have spent almost nine years working on this, we have had lots of interaction with the FDA. We’re extremely comfortable with the kinds of end points we have and how we describe them but a panel is absorbing a lot of information very quickly and so really being able to kind of backup, show the ground work and why that connects to the outcomes that they see. I think that’s going to be a key activity and that’s what unfortunately results in the kind of a 1000 slide number.

So, no magic other than a lot of hard work and making sure we’re fully and adequately prepared almost for any question they can throw at us.

In terms of the durability I think you know we have been watching the launch of Voluma with keen interests mostly because it's a slightly new area of the phase. We’ve mentioned in the script, pan facial aesthetic, physicians have really left the intervention in one specific area like nasolabial for example and started to use fillers in multiple places on the face and then this mid-face volumizing label like the lip label is giving the doctors tools to use these products across the face. But what’s really different about Voluma is the fact that it last so much longer and as a consequence was of course price substantially higher by Allergen and we think that that’s going to be an interesting test for the aesthetic consumer to attach more value to long lasting procedures as opposed to repetitive procedures. From the looks of it on the outside and from what we hear the drum beat in the jungle, it looks like the Voluma launch is going exceptionally well.

So, that value proposition seems to be playing out nicely and as we have commented we think that’s a really nice precedent for us coming to the market because of course what we’re going to be selling -- we have four years of data today, hopefully by then we will know what the five year data looks like. But, exceptionally long lasting outcome for patients which is something a little bit different than they have been able to get in the non-surgical or injectable space.

So that’s why we’re going to take some extra time with market research, make sure we watch the Voluma launch closely. This fundamental shift towards more durable response. We want to make sure it gets appropriately valued.


Thank you. I’m showing no additional audio questions at this time. I would like to turn the conference back over to our host for any closing remarks.

Heather Rowe

Thank you everybody for joining us today. You may now disconnect.


Ladies and gentlemen thank you for participating in today’s conference. This concludes the program. You may now disconnect. Everyone have a wonderful day.

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