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Edited Transcript of KIN.OQ earnings conference call or presentation 9-Nov-20 9:30pm GMT

·21 min read

Q3 2020 Kindred Biosciences Inc Earnings Call BURLINGAME Nov 10, 2020 (Thomson StreetEvents) -- Edited Transcript of Kindred Biosciences Inc earnings conference call or presentation Monday, November 9, 2020 at 9:30:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Richard Chin Kindred Biosciences, Inc. - Co-Founder, President, CEO & Director * Wendy K. Wee Kindred Biosciences, Inc. - CFO & Secretary ================================================================================ Conference Call Participants ================================================================================ * Benjamin Charles Haynor Alliance Global Partners, Research Division - Analyst * David Michael Westenberg Guggenheim Securities, LLC, Research Division - Analyst * Swayampakula Ramakanth H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Healthcare Analyst * Trevor Scott Brown Stifel, Nicolaus & Company, Incorporated, Research Division - Associate ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Welcome to the Third Quarter 2020 Financial Results Conference Call and Webcast for Kindred Biosciences. (Operator Instructions) Please note that the remarks today will include forward-looking statements, and the actual results could differ materially from those projected or implied in our forward-looking statements. For a description of the important factors that could cause actual results to differ, we refer you to the forward-looking statements in today's press release and a note on the forward-looking statements in the company's SEC filings. It is now my pleasure to turn the call over to KindredBio's CEO, Richard Chin. Dr. Chin, please proceed. -------------------------------------------------------------------------------- Richard Chin, Kindred Biosciences, Inc. - Co-Founder, President, CEO & Director [2] -------------------------------------------------------------------------------- Thank you, operator. Good afternoon, and welcome to our third quarter 2020 financial results call. Joining me today from the management team of KindredBio are Wendy Wee, our CFO; and Katja Buhrer, our VP of Corporate Development and Investor Relations. We are pleased with our progress in the third quarter. Manufacturing for our IL-31 antibody, tirnovetmab, has been completed. The protocol has been finalized, and we continue to expect the pivotal study to initiate this year. We remain excited about the blockbuster potential for this product candidate. And as we've said before, we think it could capture a significant share of what is likely to become a multibillion-dollar market. Our candidates for atopic dermatitis are progressing well, and we recently initiated another pilot study for our IL-4R antibody. We believe we have one of the broadest and most advanced dermatitis pipeline in the industry. With the exception of the current incumbent, we estimate that we are ahead of our competition in this field. So we're very excited about our highly promising dermatitis segment. Turning to the parvovirus program. We earlier reported compelling results from the prophylaxis pivotal study. We are in the midst of remaining pivotal studies right now, and we look forward to the results from the safety studies and the treatment efficacy study. There is a lot of excitement, both within the company and outside about this program, which offers hope for what is a terrible and currently untreatable disease. We remain on track for approval early next year, and discussions with potential partners are ongoing. We're also making good progress on our other programs. We are prioritizing programs as we continue to carefully manage OpEx. The epoCat and the IBD studies continue to enroll, and we expect the IBD study to read out this year. In sum, the projects are proceeding well, and we expect to deliver the program on time and on budget. With regard to the equine assets, we could not finalize the terms with the previous lead potential partner. So the process is still ongoing. Turning to financials, which Wendy will discuss in more detail, we're pleased with the royalty revenue. Our partner is doing a fantastic job with Meritain. We're also pleased with the revenue we're generating from our contract manufacturing business. The work is coming along well on our backlog partnership, and we expanded that agreement recently. We also continue to discuss potential CDMO work with several other companies. As you know, we have world-class manufacturing plants and personnel. This gives us a major competitive advantage and presents an opportunity to bring in non-dilutive capital from contract manufacturing. At the same time, our #1 focus remains executing on our very attractive pipeline. We continue to be judicious with our spending, and we were able to reduce our OpEx to approximately $10 million per quarter in Q3, which is a quarter earlier than we had initially anticipated. This gives us more than 2 years of runway, during which time, we expect to achieve important milestones on our programs and realize the value of our assets. We intend to supplement this financing with other sources of non-dilutive capital. The progress on our deep pipeline and our robust runway position us strongly for the future. The net takeaways are that we operate in a resilient and growing industry. We are amply capitalized. We're reducing our burn. We are making strong progress on high-value potential blockbuster products, and we're executing well across the board. We're very excited about our future. With that, I will turn the call over to Wendy for a review of our third quarter financials. -------------------------------------------------------------------------------- Wendy K. Wee, Kindred Biosciences, Inc. - CFO & Secretary [3] -------------------------------------------------------------------------------- Thanks, Richard. We commenced the second half of the year with a streamlined organizational structure focused on our highest value biologics assets, positioning KindredBio with the financial resources and R&D expertise to realize the value of our late-stage pipeline. Having identified cost savings, decreased general and administrative expenses and refocus R&D on our most attractive candidates in the first 6 months of 2020, we have succeeded in significantly reducing operating expenses from its peak, creating a more capital-efficient organization moving forward. Operating expenses totaled approximately $10 million in the third quarter, and we expect this quarterly run rate to hold broadly steady in the coming year. This equips KindredBio with funding through mid-2022 as we realize key pipeline milestones. Turning to our financial results. We reported a net loss of $12.2 million or $0.31 per share in the third quarter as compared to a net loss of $15.3 million or $0.39 per share in the year ago period. For the 9 months ending September 30, the net loss was $10.9 million or $0.28 per share versus $45.7 million or $1.18 per share in the year ago period. The variance reflects proceeds from the sale of Mirataz to Dechra, which was completed on April 15. Net revenues totaled $1 million and $41.2 million in the 3 and 9-month periods compared with $1.1 million and $2.9 million for the same time frames in 2019. Here again, the variance in the year-to-date result was primarily due to proceeds from the Mirataz sale totaling $38.7 million. We recorded royalty revenue of $255,000 in the third quarter and $413,000 for the first 9 months of 2020. Substantially, all product revenues in the 9-month period relate to Mirataz. Consistent with the completion of the sale in the second quarter, no Mirataz revenue was recorded in the third quarter. Product revenues for Zimeta were $4,000 and $19,000 for the 3- and 9-month periods reflecting a downturn in equine events and transportation due to COVID-19. Contract manufacturing revenue related to the manufacture of Vaxart's oral vaccine candidate for COVID-19 total $772,000 and $1.3 million based on the percentage of completion of specific milestones in the 3 and 9 months ended September 30. On October 7, we recorded an expansion of the original -- we announced the expansion of the original Vaxart agreement as we seek to make use of excess capacity in both our Burlingame and Kansas manufacturing facilities. And thereby subsidize our internal pipeline development. We see the expansion of the Vaxart agreement as an important endorsement of our biologics manufacturing capabilities, which, of course, are a key component in the success of our own pipeline advancement. Research and development expenses were consistent year-over-year, totaling $7.4 million in the third quarter versus $7.3 million in the same quarter of 2019. SG&A expenses declined to $4.7 million from $9.4 million in the prior year quarter. This reflects the inclusion of Kansas plant expenditures as R&D expenses. As Kansas began to manufacture clinical trial material, combined with lower payroll and related expenses as a result of the elimination of KindredBio's companion sales force. Prior to 2020 construction and commissioning expenditures associated with the Kansas facility has been categorized as general and administrative expenses. Stock-based compensation expense was $1.7 million in the quarter. In connection with the prioritization of KindredBio's late-stage programs and associated workforce reduction, we recorded a restructuring charge of $282,000 in the third quarter. We maintained a strong cash position. As of September 30, cash, cash equivalents and investments totaled $66.8 million compared with $73.5 million at December 31, 2019. The 2020 cash balance benefits from the Mirataz sale, which constituted a payment of $38.7 million, with a balance of $4.3 million held in escrow to be paid out in 2021. Net cash used in operating activities for the first 9 months of 2020 was approximately $3.3 million, reflecting payment received for the Mirataz asset sale. We also invested approximately $3 million in capital expenditures for the purchase of lab and manufacturing equipment for the Kansas facility. With respect to spending in 2020, as Richard mentioned, we've continued to be judicious in our spend and expect quarterly operating expenditures to remain broadly stable on a sequential basis in the fourth quarter. On a full year basis, we continue to project OpEx to range between $53 million and $55 million, which includes restructuring charges, first quarter expenditures that reflect a full organizational structure and second quarter expenditures that reflect various mid-stage development programs. Excluding these nonrecurring factors, the annualized run rate for 2020 is anticipated to be between $41 million and $43 million. Investment in capital expenditures related to lab and manufacturing equipment for our biologics programs is on track to reach between $3 million to $4 million in 2020. We believe our existing cash, cash equivalents and investments, the net reduction in the company's workforce, remaining proceeds from the Mirataz sale and revenues in the form of royalties and contract manufacturing will be sufficient to fund the current operating plan through mid-2022. In closing, we believe we now have the right operational footprint to position us for success with our business model. We look forward to important pipeline catalysts by year-end, including the completion of the pivotal efficacy study for our second parvovirus indication; initiation of the IL-31 pivotal study; and completion of our pilot study for IBD. Thereafter, we will have the necessary cash runway and R&D talent to realize important development milestones on our promising pipeline. We look forward to updating you on our progress next quarter. I will now turn the call back over to Richard. -------------------------------------------------------------------------------- Richard Chin, Kindred Biosciences, Inc. - Co-Founder, President, CEO & Director [4] -------------------------------------------------------------------------------- Thank you, Wendy. Operator, we are ready for questions. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) And your first question comes from the line of Jon Block with Stifel. -------------------------------------------------------------------------------- Trevor Scott Brown, Stifel, Nicolaus & Company, Incorporated, Research Division - Associate [2] -------------------------------------------------------------------------------- This is Trevor on for Jon. Just to start things off, wondering if you can give a little color on any interest you've gotten from potential partners on the parvo asset? And would this be a worldwide agreement? Or can you give any other detail there? -------------------------------------------------------------------------------- Richard Chin, Kindred Biosciences, Inc. - Co-Founder, President, CEO & Director [3] -------------------------------------------------------------------------------- Yes, sure. We've gotten quite a bit of interest on the parvo asset because this is a very, very significant unmet medical need. And it's a unique product that will help, in many instances, sell other products for the potential partners. Most of the partners we're talking with are interested in worldwide rights. And what we're doing right now is taking time to discuss the various terms with each of the partners. But we anticipate that it will be a deal for both of the prophylaxis and the treatment indications and for worldwide rights. -------------------------------------------------------------------------------- Trevor Scott Brown, Stifel, Nicolaus & Company, Incorporated, Research Division - Associate [4] -------------------------------------------------------------------------------- Great. And then maybe just shifting over to the IL-31. Can you give any color on the trial, number of dogs, timing? Just any detail there would be great. -------------------------------------------------------------------------------- Richard Chin, Kindred Biosciences, Inc. - Co-Founder, President, CEO & Director [5] -------------------------------------------------------------------------------- Yes. So we have not disclosed the details of the study design. But what we have said is that you can expect the design of the study to be similar to the other antibody that's on the market. Since we are going to the USDA as well, and they do have to usually stick relatively close to precedent. In terms of the timing, what we have said in the past is that typically, studies like the IL-31 study would take about 12 months. However, we do not yet know the impact that COVID might have on the enrollment rate. So we won't be in a position to give firm timelines until we've had a couple of months of -- at least 2 or 3 months of enrollment under our belt. -------------------------------------------------------------------------------- Operator [6] -------------------------------------------------------------------------------- And your next question comes from the line of Ben Haynor with Alliance Global Parters. -------------------------------------------------------------------------------- Benjamin Charles Haynor, Alliance Global Partners, Research Division - Analyst [7] -------------------------------------------------------------------------------- Just curious on how the first parvovirus submission is coming along. And then just thinking about pursuing both indications for parvovirus, what was kind of the calculus that you went through in deciding to do that? I mean, was it something related to expanding the market? Are the doses going to be different? Is it mainly for the purposes of partnering out and the desirability of having both indications? Anything you could -- any color you could provide there would be helpful. -------------------------------------------------------------------------------- Richard Chin, Kindred Biosciences, Inc. - Co-Founder, President, CEO & Director [8] -------------------------------------------------------------------------------- Yes, sure. The submission is coming along very well. So the team is already working on that. And in terms of the indication, there are 2 unmet medical needs in the parvovirus field. One is, obviously, as of dogs are unprotected. And right now, there is no treatment, there's only supportive care. So that is a very, very large unmet medical need. And more serious unmet medical need because the fatality rate is very high if the animals are untreated. On top of that, there is a need for preventing this disease in animals that have been exposed or may be exposed, both. And that's because the disease is very contagious. And you can get -- the dog can contract parvovirus from even a small exposure, they can get it even from an indirect exposure. And for every dog that is infected, there are at least 3 dogs or more that are exposed to parvovirus who are at risk of developing it. So this is a market that is larger in terms of number of animals, probably smaller or less of a -- has -- of a serious unmet medical need because they have not developed the disease yet. However, there are 2 distinct unmet medical needs. And you can't always extrapolate results from one versus the other. So we wanted to make sure we captured both markets, and that's why we're doing both studies. -------------------------------------------------------------------------------- Benjamin Charles Haynor, Alliance Global Partners, Research Division - Analyst [9] -------------------------------------------------------------------------------- Okay. That makes sense. I mean I would think that a lot of them would be -- or if you got approved for one or the other, it would probably be used extra label or off-label, but I guess it makes sense to go after both of them. Just, I think. -------------------------------------------------------------------------------- Richard Chin, Kindred Biosciences, Inc. - Co-Founder, President, CEO & Director [10] -------------------------------------------------------------------------------- Yes. Yes. I think you're absolutely right. If we got on the market with just one, then I think the veterinarians and the owners would definitely use it in the other indication. Unfortunately, these studies are fairly quick and fairly inexpensive. So we've decided to invest the money into both indications. But you're right, getting it approved for either indications would probably be for both. -------------------------------------------------------------------------------- Benjamin Charles Haynor, Alliance Global Partners, Research Division - Analyst [11] -------------------------------------------------------------------------------- You'd probably see usage anyway. Okay. And that's a good point on the cost of it being relatively inexpensive. Then I suppose with the Pfizer news today, does that change anything with the vaccine candidate? Or anything you can speak to there? And then when you're looking at CDMO work for other companies, what kind of enters the equation in terms of, is there a certain gross margin target that you have for these things? Is it -- obviously, considerations need to be made for your own capacity either now or down the road? What enters into the equation there? -------------------------------------------------------------------------------- Richard Chin, Kindred Biosciences, Inc. - Co-Founder, President, CEO & Director [12] -------------------------------------------------------------------------------- Today's announcement by Pfizer, which is fantastic, by the way, doesn't impact us directly. It may impact Vaxart but we can't speak to them. The contracts we have, I think, will move forward. So I don't think that's going to change. Now in terms of your second question, what we do is we try to fill up the excess capacity. So we don't want to slow down any of our internal programs. So we set aside the manufacturing slots for those. And then we try to fill the excess capacity. And there's not a specific target in terms of margin. However, the CDMO business has relatively good margins. And what we're finding is that we can get business or it looks like we're going to get business by charging the standard going rate, which does get us a pretty attractive margin. -------------------------------------------------------------------------------- Operator [13] -------------------------------------------------------------------------------- And your next question comes from the line of David Westenberg at Guggenheim. -------------------------------------------------------------------------------- David Michael Westenberg, Guggenheim Securities, LLC, Research Division - Analyst [14] -------------------------------------------------------------------------------- A recent competitor launched a product in hunger for cats. I realized it's now just a royalty stream, but it is probably helpful to have that royalty given that with the cash burn. So how should we think about the difference in that launch, the competitive launch in terms of the market? -------------------------------------------------------------------------------- Richard Chin, Kindred Biosciences, Inc. - Co-Founder, President, CEO & Director [15] -------------------------------------------------------------------------------- Yes. So the product that you're thinking of was approved for a narrower indication than for Mirataz. So I think they'll be targeting a subset of the market. They won't be able to target the entire market. When you have a second competitor enter a market like weight loss or management of weight loss, it often counterintuitively increases the sales of the first product. And that's often the case when it's a new market that needs to be developed and having multiple companies talking about the disease state can often be beneficial to both products. So we think that may happen. We don't know yet. So we think that Mirataz is a very, very strong product, and it's doing very well in the hands of our partners. So we anticipate that, that will continue to climb. Then we'll have to watch to see how that -- how the competitive arena plays out. -------------------------------------------------------------------------------- David Michael Westenberg, Guggenheim Securities, LLC, Research Division - Analyst [16] -------------------------------------------------------------------------------- Got it. Then on to ILs, the IL-13 hind 16. I think it rolls a little bit late, and I think your estimate was, and correct me if I'm wrong, 12 to 18 months. It was on the high end of that estimate. Do you still think you'd be second to market? And if you're theoretically third, how much of a difference does it make if the second to market is a JAK versus another monoclonal antibody? -------------------------------------------------------------------------------- Richard Chin, Kindred Biosciences, Inc. - Co-Founder, President, CEO & Director [17] -------------------------------------------------------------------------------- Yes. So we don't know all the other products that are being developed. But of the ones that we do know that are being developed for atopic dermatitis, we are still in the lead. And our expectation is that we would be the next product to come onto the market. Now we believe that ultimately, the antibodies are going to take a lion's share of the market. So additional JAK inhibitors that come onto the market, we're not nearly as concerned about as -- compared to potential other biologics. And if COVID slows down our study, it will have a similar impact on any other studies that are ongoing. So we don't think that's going to change the order of approval for the drugs that are in the pipeline. But right now, we believe we have years of head start on other potential products for this indication. -------------------------------------------------------------------------------- David Michael Westenberg, Guggenheim Securities, LLC, Research Division - Analyst [18] -------------------------------------------------------------------------------- Okay. And then just maybe a housekeeping question. The burn rate of 4 quarters of cash, I mean, or 8 quarters of cash, $10 million burn, that would be $80 million, and you have $67 million in cash. Does that mean in the assumption, there's the assumption for royalty and contract manufacturing contribution of $13 million? Am I doing that correct in that assumption? Or just a way to think about that cash burn for us. I'll let Wendy. -------------------------------------------------------------------------------- Wendy K. Wee, Kindred Biosciences, Inc. - CFO & Secretary [19] -------------------------------------------------------------------------------- Yes, the cash runway takes into consideration Mirataz royalty as well as contract manufacturing revenue. So that comes into play. -------------------------------------------------------------------------------- Operator [20] -------------------------------------------------------------------------------- (Operator Instructions) And your next question comes from the line of Swayampakula Ramakanth with H.C. Wainwright. -------------------------------------------------------------------------------- Swayampakula Ramakanth, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Healthcare Analyst [21] -------------------------------------------------------------------------------- This is RK from H.C. Wainwright. I know that most of the canine-related questions have been asked. Regarding the feline erythropoietin, very common ended, it's protein work that we have been doing for the last 1 year. So where are the studies at this point? And how much of an impact does COVID-19 have on the study itself and how it's being conducted. I just like to get some color on it. -------------------------------------------------------------------------------- Richard Chin, Kindred Biosciences, Inc. - Co-Founder, President, CEO & Director [22] -------------------------------------------------------------------------------- Yes. The study is still enrolling. And we always knew that this would be a slow study to enroll. Because unlike atopic dermatitis, for example, where it's very obvious to the owner that the animal has the disease. Anemia, you have to screen for, you have to do a lab test on. So we always knew it would be slow. The enrollment has been significantly impacted by COVID. And the rate has picked up a little bit as the veterinary clinics have opened, but we still anticipate it's going to take quite a while. This is also a program that's lower priority than some of the other programs. So we are not devoting as much resources to it as, let's say, the atopic dermatitis program, obviously, because we are managing OpEx carefully. So it's going well, but it is going fairly slowly. -------------------------------------------------------------------------------- Swayampakula Ramakanth, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research & Senior Healthcare Analyst [23] -------------------------------------------------------------------------------- Okay. And then on the equine business. So I know you have been trying to evaluate appropriate strategic option for this business. Where are you in the process? How close are you to getting a solution? Or is this also another -- is this process also getting impacted by COVID-19, and that's the reason why it's taking a little longer time? -------------------------------------------------------------------------------- Richard Chin, Kindred Biosciences, Inc. - Co-Founder, President, CEO & Director [24] -------------------------------------------------------------------------------- So it's been indirectly impacted. I wouldn't say COVID impacted in the discussions. But what it has done is made a little bit harder to agree on valuation because with all the horse shows being shut down, the -- it's hard to estimate what the true value of Zimeta, for example, and what the sales would be if this were under a normal environment. But it's had an indirect impact. But right now, we're talking to multiple partners. The original deal that we were looking didn't quite go all the way through to consummation, which is not uncommon. Often you can have a nonbinding term sheet and then things can change. What I can say is there are multiple interested parties, and we hope to have this wrapped up in the next several months. -------------------------------------------------------------------------------- Operator [25] -------------------------------------------------------------------------------- I would now like to turn the call back over to Mr. Richard, CEO. Thank you for any further comments. -------------------------------------------------------------------------------- Richard Chin, Kindred Biosciences, Inc. - Co-Founder, President, CEO & Director [26] -------------------------------------------------------------------------------- Thank you. I'd like to thank our listeners for your support as we continue to attempt our promising pipeline. -------------------------------------------------------------------------------- Operator [27] -------------------------------------------------------------------------------- This concludes today's conference call. You may now disconnect.