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Edited Transcript of KMPH.PK earnings conference call or presentation 12-Aug-20 8:30pm GMT

Q2 2020 KemPharm Inc Earnings Call

CORALVILLE Aug 23, 2020 (Thomson StreetEvents) -- Edited Transcript of KemPharm Inc earnings conference call or presentation Wednesday, August 12, 2020 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* R. LaDuane Clifton

KemPharm, Inc. - CFO, Secretary & Treasurer

* Travis C. Mickle

KemPharm, Inc. - Co-Founder, Chairman, President & CEO

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Conference Call Participants

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* Oren Gabriel Livnat

H.C. Wainwright & Co, LLC, Research Division - MD & Senior Healthcare Analyst

* Jason Rando

Tiberend Strategic Advisors, Inc. - COO & EVP

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by and welcome to the KemPharm Q2 2020 Corporate Update Conference Call. (Operator Instructions) Please be advised that today's conference may be recorded. (Operator Instructions)

I would now like to hand the conference over to your speaker today, Mr. Jason Rando with Tiberend Strategic Advisors. Thank you. Please go ahead, sir.

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Jason Rando, Tiberend Strategic Advisors, Inc. - COO & EVP [2]

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Good afternoon and thank you for joining our call today to discuss KemPharm's Second Quarter 2020 Financial and Corporate Results.

Before we begin, 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 are made pursuant to the safe harbor provisions of the federal securities laws and represent management's current expectations. Actual results may differ materially. KemPharm disclaims any obligation to update or revise its forward-looking statements, except as required by law. More complete information regarding forward-looking statements, risks and uncertainties can be found in the reports KemPharm files with the SEC, which are available on KemPharm's website at www.kempharm.com under the Investor Relations section. We encourage you to review these documents carefully.

Speaking on today's call will be Travis Mickle, KemPharm's President and CEO; and LaDuane Clifton, CFO. Following their remarks, we will open the call to questions.

With that, it's my pleasure to introduce Travis.

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Travis C. Mickle, KemPharm, Inc. - Co-Founder, Chairman, President & CEO [3]

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Thanks, Jason, and thanks, everyone, for joining the call today.

As many of you have already seen or heard over the last quarter, we've had a number of advancements onto our plan for KemPharm over the coming quarters. The -- first and foremost, we did get the NDA accepted for our lead product KP415 by the FDA and received the $5 million milestone payment from our partner, (inaudible)/GPC. With that as well, we received our Day-74 Letter from the FDA setting the PDUFA date of March 2 as well as letting us know that they do not anticipate the need for an Advisory Committee at this time. We also announced that Corium, a GPC portfolio company, will actually lead the commercialization of KP415. I will go into this in a little more detail, but this is a highly experienced organization led by many that used to be former Shire executives.

In addition, we recently announced 2 patents that were granted, adding 5 more years to the patent life for our serdexmethylphenidate, which is the prodrug in both KP415 and KP484.

I'm actually going to ask LaDuane Clifton to give our highlights -- or financial highlights as well as our improved financial position update.

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R. LaDuane Clifton, KemPharm, Inc. - CFO, Secretary & Treasurer [4]

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Thanks, Travis.

In addition to those regulatory and product updates, our financial results for Q2 were also very positive. We reported revenue of $6.9 million. That's our fourth sequential quarter of earning services revenue, and it was comprised of both the $5 million milestone payment and then $1.9 million of services revenue. That led us to net income of almost $1 million or $0.01 per share, also very good. And we ended the quarter with $6.6 million in cash, which is a nice increase compared to where we were at the end of Q1.

The revenue and the lower expense base has reduced our projected cash burn to $1 million a quarter or less. And with the principal interest payments related to our debt being pushed out to March 31, '21, these things all taken together ensure or lead our cash runway to be extended up to the debt maturity date, which is again March 31, '21, and pass the PDUFA date for KP415.

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Travis C. Mickle, KemPharm, Inc. - Co-Founder, Chairman, President & CEO [5]

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Thanks, LaDuane.

For a little more color on the KP415 regulatory and commercial planning update, I mentioned the PDUFA date, the Advisory Committee. On the last call, I did mention that we would plan at some point to have a mid-cycle review meeting with the FDA. It's actually been scheduled for tomorrow. Of course, any relevant updates from that meeting would be provided in a subsequent press release.

In addition to announcing that Corium is now the lead for the commercialization, we continue to earn consultation fees under this commercialization and consulting fees from Corium. Additionally, we do plan to have a discussion. This would be a hosted sort of webcast investor/analyst call in which the Corium leadership team would be able to provide us all with some additional updates on their sales and marketing planning, the way they see the market. That planning is still in the works. So when that would be, of course, will be determined primarily by Corium schedules. But additionally, we want to have it in an opportune moment in the fall time frame.

Turning now to more of a reminder slide. This is a summary of the KP415-484 partnership. You can see highlighted there is the $5 million payment triggered by the NDA acceptance. What we've already received is roughly $18 million. And then what's left to be received -- what's the next milestone is up to $58 million in approval milestones for KP415 and 484, with the majority of that being, of course, for KP415.

As we continue to work towards the potential approval of KP415, our commercial partner here, Corium, is doing the same but now planning for the launch. This organization is really poised very well to exploit the opportunity that we have in front of us with such a differentiated product in KP415. Again, the organization is head by Perry Sternberg, many years at Shire, Head of -- essentially, Head of Neuroscience and U.S. Commercial there at Shire, which included the product Vyvanse, which is a multibillion-dollar product for the treatment of ADHD. Many of the other leadership team members are also previous executives and highly experienced in this particular space during their time at Shire.

We did provide here in the slide deck a little bit of update on the ADHD and extended release methylphenidate market as of last year. The market has grown again very steadily year-over-year, roughly about 4% growth. The branded market is growing. That's predominantly from the Vyvanse component. But as well, you also see methylphenidate continue to grow based on previous years. We still believe, again, 415 addresses a number of unmet needs, and I'll highlight those on the next slide.

So with KP415-484, just a very brief overview for those not as familiar with the organization. KP415 and 484 are both the lead products that we licensed to GPC, now going to be commercialized by Corium. We have this upcoming PDUFA date with KP415. It really is the left hand to Vyvanse's right hand. It's intended to be the methylphenidate version of Vyvanse, Vyvanse being a prodrug of amphetamine. In this particular case, we actually do see that it comes on sooner, lasts just as long and has a lower abuse potential as far as the prodrug component versus just methylphenidate. We believe these attributes, all combined in a marketplace and a treatment option with methylphenidate in need of better improvements, really make this a potential to be the best-in-class product for the treatment of ADHD.

KP484 is just the adult version of KP415. There's adults that really need around-the-clock coverage of their ADHD symptoms, and that's what this product is designed to do. We are still working with Corium to determine what the optimum time and resource allocation from their part would be to develop and potentially launch and market KP484 as well as some of the other option products they have in the licensed agreement.

I'm going to turn it back over now to LaDuane to discuss a little bit more on the APADAZ commercialization and to give you the full details -- rundown as it were on the financials. Go ahead, LaDuane.

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R. LaDuane Clifton, KemPharm, Inc. - CFO, Secretary & Treasurer [6]

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Great. Thank you.

APADAZ, as you know, we have partnered that asset to KVK Tech, one of the leading generic manufacturers in the U.S. They're actually -- continue to be the leading manufacturer of oxycodone generic products in the U.S. and continue -- and we are -- this update is what they've told us recently, noting that the number of Medicaids that have added the authorized generic of APADAZ is now expanded up to 23. That's very helpful. And of course, we've been -- the product has been listed in the Federal Supply Schedule, which has opened up additional channels there for various agencies -- federal agencies that utilize that. Admittedly, KVK notes that the progress has been slow. This environment for opioids is very difficult and really requires some caution in terms of how you raise physician awareness of the product and what it could mean for their patients. The approach so far, though, has been focused on providing education to pharmacies and physicians regarding, really, responsible opioid prescribing. And we hope to have more news to share from KVK over the next few months as they continue those efforts.

I will tell you sort of anecdotally that KVK is very committed to the product. And although this has been slower than maybe folks have expected, we think that there is good progress being made, and we look forward to being able to share those updates as KVK provides them to us.

As a quick reminder, under the license agreement, there's actually up to $3.4 million in an initial adoption milestone and also other cost reimbursement payments that would be payable to KemPharm upon achievement of a certain level of potential annual utilization of APADAZ. With -- based on sort of what KVK has indicated to us, we believe this could be achieved as early as the end of the year. But again, we'll report out to you as that moves forward. And there is a profit share component to the license agreement, but understanding that the pricing is at parity with generics, getting to a range of profit is paramount to receiving a profit share. And so we think that could happen in 2021. But for sure, it's going to be -- a little bit of time will pass after achievement of the milestone to reach that level of profit to require share coming to KemPharm.

Turning now to our Q2 financial results. Revenue during Q2 -- we had revenue of $6.9 million, as I mentioned before, which was comprised of the $5 million milestone payment earned for acceptance of the KP415 NDA and $1.9 million of services revenue, which we earned while supporting a number of activities, including support for Corium's commercial prep activities for KP415. This is our fourth sequential quarter of earnings services revenue, and this is a trend we expect to continue going forward, up to and past the potential launch of KP415, which assume, if approved, would be targeted for sort of the middle of 2021. This revenue led to net income for Q2 of nearly $1 million, $900,000 or $0.01 per basic and diluted share, which represents a dramatic increase compared to a net loss of $9.3 million or $0.33 loss per basic and diluted share in the same quarter of 2019.

Our operating income for the quarter -- Q2 2020 was $2.6 million, and this was driven by the revenue and also the reduced expense base. R&D expenses were $2 million for Q2, which was a 59% reduction compared to Q2 of 2019. And our G&A expenses were $1.7 million during the current quarter, which was $1.3 million less than Q2 of last year.

Taken together, the positive income statement results led to an increase of cash at the end of Q2 2020. We had total cash of $6.6 million as of June 30, which was an increase of $4 million compared to March 31 -- Q1. Based on our operating forecast, expected future revenues and existing resources, our cash runway is expected to lead past the PDUFA date and up to the debt maturity date of March 31, 2021.

Total debt at the end of Q2 was $67.3 million, and that represented a reduction of $1.3 million during the quarter, which was driven by a reduction of $3.2 million from the Deerfield exchanges under an agreement we had entered into back in December of 2019. And that -- those exchanges were offset by interest added to principal of $1.3 million and amortization of debt discount and issuance costs of about $600,000.

At the end of the quarter, the Deerfield exchange agreement had approximately 5.2 million shares remaining. And since the end of the quarter, that agreement has been fully utilized. We also utilized -- during the quarter, we utilized the remaining portion of the Lincoln Park ELOC facility, raising an incremental $1.1 million in cash. There also are no additional shares remaining under that facility as of the end of Q2 as well.

Looking ahead, we continue to work on improving our financial position. And as we have discussed before, restructuring our debt is one of our highest priorities. Together with our advisers, we continue to pursue and evaluate the various options that are in front of us to reposition our balance sheet, which may include royalty financing or new corporate debt or a solution, which utilizes several features. In this process, we seek to balance the cost of capital with any dilution in order to optimize the final result of this process. While there are no guarantees, we believe it remains possible to complete this process prior to the KP415 PDUFA date. And as Dr. Mickle has outlined, there are a number of catalysts leading up to that time, which we believe will support these efforts.

Uplisting to NASDAQ is another component of improving our overall financial position. That is something that we are working on in parallel with the other restructuring -- debt restructuring efforts. And we hope that all of this taken together will build the momentum and make it possible for us to return to trading on the NASDAQ. However, the timing of such a move is difficult to predict. And at some point, all of these efforts are closely intertwined. We will keep you posted as we continue on all of these efforts and make progress with this process.

Back to you, Travis.

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Travis C. Mickle, KemPharm, Inc. - Co-Founder, Chairman, President & CEO [7]

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Thanks, LaDuane. So just to wrap up and kind of a look forward here, know about the PDUFA date. Mid-cycle review meeting is tomorrow. So I'll be working diligently on that tonight. We'll provide any updates, of course, there as we see them coming.

As far as the progress with Corium, again, the next update will be actually literally from their mouth. And so we will prepare for that and provide that as soon as possible from them.

As LaDuane outlined, really improved the financial position of the organization, again, very close now to breakeven, bringing in additional revenue from our consulting agreement with Corium as well as finding other opportunities to continue to work to support the commercialization of KP415.

We're also working with Corium as they are right now entirely focused on the commercialization but also looking at the pipeline products, and future updates will be provided there as both organizations get more clarity.

And then KVK, as LaDuane outlined, continues to advance APADAZ, extremely -- still excited about the opportunity, and let's give them the chance to get this adoption milestone to us, hopefully, by the end of the year. But certainly, it does seem more plausible.

So with that, I'd like to wrap up and maybe see if there's any more questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Oren Livnat with H.C. Wainwright.

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Oren Gabriel Livnat, H.C. Wainwright & Co, LLC, Research Division - MD & Senior Healthcare Analyst [2]

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Can you hear me?

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Travis C. Mickle, KemPharm, Inc. - Co-Founder, Chairman, President & CEO [3]

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Yes.

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Oren Gabriel Livnat, H.C. Wainwright & Co, LLC, Research Division - MD & Senior Healthcare Analyst [4]

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All right. Great. So on KP415, you got that Day-74 Letter, which obviously confirmed the timing into ADCOM. I'm wondering, is there anything that could possibly be contained in there that gives you any color, good or bad, around your expectations for potential label claims of onset and duration? Or is that the kind of thing that might come up, if at all, tomorrow in your mid-cycle review meeting? And if so, any chance we hear from you if a -- good or bad, if there's any change to your strategy?

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Travis C. Mickle, KemPharm, Inc. - Co-Founder, Chairman, President & CEO [5]

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No and maybe. So the first part of your question, the Day-74 Letter really just confirmed the date and outlined that there would be future meetings. So the product itself is a new molecular entity. We believe it'll also be designated as a new chemical entity once it's approved. And therefore, it's subject to what's known as the program. So it's a very regimented set of milestones and milestone meetings that the sponsor participates in to some degree. So this first mid-cycle review meeting is something that we are now going to have with the agency tomorrow, and that's where they may just bring up topics for discussion where they might give you additional information request. But as of today, we don't have anything that really indicates what that labeling may look like.

Now at some point, that will change. We are actually not allowed to disclose those conversations. We can probably, at some point, depending on what that looks like, give some indication of where we may stand, but we can't go into any detail with those. But that would be closer -- much closer to the PDUFA date than where we sit today in August.

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Oren Gabriel Livnat, H.C. Wainwright & Co, LLC, Research Division - MD & Senior Healthcare Analyst [6]

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Okay. And I think I ask you something along these lines every time we talk, and that is about Corium's visibility. And I was encouraged to hear about this call event that they're hopefully going to do. But besides the investor community, what about the ADHD treatment community? With this potential approval in the not-so-distant future, should we expect a company to be making the industry aware of this product that might be coming with this theoretical profile and maybe making the industry aware of their corporate presence as well?

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Travis C. Mickle, KemPharm, Inc. - Co-Founder, Chairman, President & CEO [7]

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I mean that's a question really for Corium, but I'll -- I certainly won't guess to what their whole plans are. I do know that they're actively prepping the market and preparing for a launch. Now if we do the math and look at March 2 as the PDUFA date, we also note that 70% of our product is an unscheduled prodrug of methylphenidate that must be scheduled. We know that's a 90-day process with the DEA by statute. And so we're looking at a midyear potential launch, which, as you could imagine, matches up very well with the start of school.

So I think, and this is to the best of my knowledge, that they're doing everything they can at this point in order to prepare for that. But you're right. Along the way, we're going to see more and more activity. I'd say conferences and congresses with KOL, events, efficacy groups, all the like that you can do in advance of an approval and then everything you would expect afterwards.

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Oren Gabriel Livnat, H.C. Wainwright & Co, LLC, Research Division - MD & Senior Healthcare Analyst [8]

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All right. Great. I look forward to that. And KP484, obviously, it sounds like it's up to them next steps, but should I assume that there's nothing happening there until there's more certainty around 415? Is there any reason to assume that however 415 plays out from a regulatory perspective has direct read across to 484? I mean, I guess, obviously, if the FDA had some major problems with the prodrug itself that obviously has a read across, but there are slightly different approaches. So I'm wondering if there's anything to do on that product in the meantime.

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Travis C. Mickle, KemPharm, Inc. - Co-Founder, Chairman, President & CEO [9]

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I mean that's a question that I have for Corium too. When are you going to start working on KP484? That's something that I don't have any more visibility on, and they'll kind of tell us when they tell us sort of thing. And I don't see anything to indicate that there's concern based on 415 interactions or anything. So they're making their own assessment. They've got to get this organization ready to launch 415 first and then find out where the place is for 484. That doesn't mean they won't start well in advance, but we haven't been notified if that's the case yet.

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Operator [10]

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(Operator Instructions) And I am not showing any further questions at this time. I would now like to turn the call back over to Travis Mickle for any further remarks.

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Travis C. Mickle, KemPharm, Inc. - Co-Founder, Chairman, President & CEO [11]

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Thank you. And thanks, everyone, for joining today. Again, we continue to make advancements. We continue to work on along our plan. And we will also provide updates as they happen as real time as we possibly can. Appreciate your support, continued interest in the company and look forward to bigger and better things in the near future. Thank you, everyone.

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Operator [12]

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Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.