KemPharm, Inc. (NASDAQ:KMPH) Q4 2021 Earnings Conference Call March 30, 2022 5:00 PM ET
Company Participants
Jason Rando – Tiberend Strategic Advisors
Travis Mickle – President and CEO
LaDuane Clifton – CFO
Conference Call Participants
Jonathan Aschoff – ROTH Capital Partners
Operator
Thank you for standing by, and welcome to KemPharm Fourth Quarter and Year-End 2021 Results Conference Call. [Operator Instructions] Please be advised that today’s conference may be recorded. [Operator Instructions]
I would now like to hand the call over to Jason Rando of Tiberend Strategic Advisors.
Jason Rando
Good afternoon, and thank you for joining our call today to discuss KemPharm’s fourth quarter and full year 2021 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 KemPharm’s filings with the SEC, which are available on KemPharm’s website under the Investor Relations section.
Speaking on today’s call will be Travis Mickle, KemPharm’s President and CEO; and LaDuane Clifton, CFO. Following the remarks will be a question-and-answer session, which will include responses to questions that were submitted during the past week.
With that, it’s my pleasure to introduce Travis.
Travis Mickle
Thanks, Jason, and thanks, everyone, for joining today.
So a little bit of an introduction into KemPharm for those who are new to us. I’d like to speak a little bit about our value proposition. KemPharm is an innovative company, developing novel treatments in CNS and rare diseases. Historically, we’ve accomplished this via the use of prodrugs like our approved and partnered products, AZSTARYS and APADAZ.
Now our focus has turned more to a broad base of drugs, including those in areas with significant unmet needs and high value with the potential to internally commercialize those at some point if we decide to do so. While we have two approved products, we remain, at this time, a drug development company and unique in today’s market, one with revenue and no need to raise additional capital.
Turning now to kind of a year-end review of 2021. As many of you may be aware, there was a shareholder letter that was sent out in 2020, outlining what needed to be done to significantly change the situation of the company at that time. And if you were a shareholder at that time, I think you are very aware that, that situation wasn’t very good.
Based on that plan, we were able to execute a remarkable transformation of KemPharm in 2020 and ’21, highlighted by regaining our NASDAQ listing, eliminate all debt and the approval and launch of AZSTARYS. That being said, we continue to build towards the goal of building substantial value with long-term shareholders and fundamental value in the company.
Value still requires some cleaning up, including reducing any more overhang, place — critical tools in place to monetize or create value as well as capitalize the company so that future dilution would be unnecessary. In today’s current marketplace, this is an invaluable resource to have. Other development companies are seeking funds; we have no need to do so.
In January, we outlined our plans for 2022 and beyond, and we’re already well underway to executing on this plan. We initiated the development program for KP1077 where we believe there’s a high unmet need, high value proposition with a product we’ve already developed as part of AZSTARYS. We also continue to expand the opportunities in front of us with our pipeline through both identification of BD resources, so external resources, that we could bring into our pipeline as well as internal programs and products.
The AZSTARYS launch is actually gaining traction. We’ve seen this through updates from Corium, provide more details later. The full national team is in place. And currently, they have over 110 million commercial lives covered. And this is all built on that foundation I just discussed, which is a foundation with a strong balance sheet, able to support everything we intend to do in the near term and long term for the organization.
Cash and cash equivalents and long-term investments of $127.8 million as of the end of the year as well as our ability to support our continued efforts with capital extends well beyond 2025.
Turning now to our pipeline. These are just several of the highlights that we have here. KP1077 for its potential treatment in idiopathic hypersomnia is our most advanced candidate. It’s now — it will be Phase 2, Phase 2-ready, anticipate the start of that trial, and I’ll give more details about various milestones closer to the end of the presentation. But that study should start in the Q3 of this year.
It’s followed closely by initiation of studies in narcolepsy where products like this have shown some promise as well as potentially adding to our sleep disorder pipeline through either internal, external or both acquisition and internal candidate identification. And then, as many of you are also aware, we’ve also explored stimulant use disorder. Again, this is an SDX-related product, similar to KP1077. There, the study and results of that study really lead us to believe that we need to get external funding and collaboration in order to advance that program.
And on top of that, we’re trying to add to our current pipeline with some more advanced candidates. And ideally, this is focused around building additional clinical milestones and additional potential commercial assets as we build out our portfolio of CNS rare disease products.
So let’s focus a little bit more on SDX specifically and the SDX product candidate opportunity. When we look at KP1077 as the potential treatment for idiopathic hypersomnia, idiopathic hypersomnia fits the bill very well for a CNS rare disease. There’s less than roughly about 37,000 patients identified and currently seeking treatment in the United States. That number gets larger when you expand globally, but there is clearly an identifiable market within the U.S.
The symptoms here for IH are very debilitating, been identified by many KOLs, clinicians, physicians and patients as more so than narcolepsy. The chronic daytime sleepiness is debilitating to the point of inability to drive; inability to work; inability to maintain social relationships; long, unrefreshing naps; extreme difficulty upon waking, also known as sleep inertia.
And then couple that with severe brain fog, and this is something that we’re aware could be something very useful to treat and overcome because many of the other products do not do that. IH patients have reported a number of different issues, but they also report that their current medication effectiveness was fairly poor. So the available approved treatment option as well as off-label treatment options just don’t work, don’t address the symptoms.
Turning now how we believe KP1077 could actually overcome this. This product candidate is entirely made up of our SDX, Serdexmethylphenidate, product with multiple dosing options, depending on patient needs. It’s dosed either one time before bed or one time before bed and then upon waking. And this addresses the two issues that I spoke about before, which is the sleep inertia, the waking, the inability to do so.
If you take it the night before, should help produce an effect early in the morning and aid in that waking process. If it’s taken in the morning, that will help with the brain fall throughout the day. And when they’re both taken together, you address those two major issues as 1. SDX has already been designated as a C4 by the DEA.
This is something we’ve already seen. It’s a benefit inherent to the molecule. And as it’s released as methylphenidate, there’s no drug-drug interaction potential, and it has the same interaction potential as all methylphenidate products and has no potential with hormonal contraceptives. And a common comorbidity with IH is depression and it has no DDI potential with antidepressants.
What we’re also going to be studying here is the greater tolerability. Can we increase this dose because the drug is more tolerable than other treatment options, including other methylphenidate-based products? And where you get to efficacy then at higher doses, will this be something that patients do better on?
The dosing regimen is unique, and it does provide an option that doesn’t exist. And we are studying and we’ll outline the timing of that, a lessened effect on heart rate and blood pressure versus other methylphenidate products. The product is certainly orphan drug designation potential as well as fast track breakthrough and other options available to it, solid IP through 2037. We recently announced the results — the full results of the trial that we conducted with SDX, initially focused on the treatment of stimulant use disorder, but fundamentally, these subjects were used to a high dose of stimulants through their history of drug abuse.
When we looked at the trial data in its full entirety as well as looked at the history here of use of methylphenidate, Ritalin and Ritalin-SR are currently already indicated for the use in narcolepsy. Narcolepsy is a rare sleep disorder with a primary symptom associated with that is excessive daytime sleepiness. So again, Ritalin and Ritalin-SR are used to treat that part of the symptoms of narcolepsy.
So we believe based on that as well as the results of our studies, we’re well positioned in our upcoming efficacy trial. We also saw in our Phase 1 trial additional effects of hypervigilance. Insomnia were higher, which may sound bad, but it actually is good in this case. Wakefulness and feeling energized, as you can see on the right-hand side here, in these relative scales, were much higher than the baseline score range that we had.
So if you look at drowsiness, alertness in this particular score, a 50 is baseline. I’m neither drowsy nor alert. I’m just here. You can see at the baseline, which should take in the morning, people were slightly drowsy, right? You just woke up. And certainly, throughout the day, when they get the peak score range, it gets up to close to 90 on this scale. So certainly, they are alert based on this data.
And energized is a uniportal scale from 0 to 100 where the baseline range was in the — below 20, and the peak scores were well above that. Certainly, a very positive indication that we’re on the right track when we talk about the efficacy of KP1077 for use in IH.
Now I do want to spend a little bit of time here also reiterating the market opportunity. When we speak about rare diseases, it’s fairly unique, right? We don’t — wouldn’t need, don’t need a large sales force.
You basically know who the physicians are that diagnose and write treatments for these patients. You literally, in some cases, can know every patient if it’s an ultrarare disease. Xywav was — is and was the first treatment approved for idiopathic hypersomnia. Based on various analyst reports, they estimate roughly $300 million in sales could be associated with the IH indication for Xywav.
And there’s a lot of assumptions here based on roughly 9% of the diagnosed patients. So when we thought about this, and again, this is an illustrative example only, we don’t know what the actual clinical differentiation will be for KP1077. But assuming we get all the differentiation we want, we would assume that physicians would prefer us over other treatments.
When we look at Xywav and the studies that they conducted, 75% of the patients in that trial also took a stimulant medication. So this is not something that would exclude the use of a product like KP1077. In fact, in 75% of the patients, it could include them as one of the options available there. We believe that the improved efficacy, because of the increased tolerability, would also significantly position us in a good position as well as the safety profile to see it’s a controlled substance C4, improved cardiovascular safety and again, the lack of significant drug-drug interaction.
The other things that would kind of help lift KP1077, there are barriers for products like Xywav, including their AEs, the dosing regimen, the REMS program that’s in place and the stigma associated with giving GHB, even as a therapeutic product. A benefit here is that Xywav is going to be promoting the disease awareness, marketing and product, and that provides us an opportunity to piggyback on their efforts.
Wakix is another product under development for IH, and we believe there’s uptake issues related to that based on the different mechanism of action, not as well understood as well as the potential for drug-drug interactions that I mentioned previously.
So looking at the other leg here of our 4-legged stool of how we intend to create value over the next few months and years, looking, again, specifically at SDX, we’re focused here on essentially a pipeline within a pill. We’ve looked at not just IH and narcolepsy but other disorders, and we continue to evaluate these as potential routes in which we could commercialize a unique product that could address an issue within various other indications.
We’ve already — I already mentioned stimulant use disorder, SUD. That particular program has its own difficulty. It’s a very challenging study that we conducted, realized very early on in that — as we got results that we needed additional partnerships there. We are actively engaged with a top-tier firm to investigate government grants, government funding, government collaborations as well as continue to explore industry and academic collaborations to advance that program. It’s something we believe has value, but we also believe it’s better suited with experts in this field.
Looking at our pipeline expansion strategy. I mentioned already that we are advancing and looking to advance internal programs. We think we may have a lead within that space as early as next quarter, something that we could potentially announce. Now in this particular space, in this particular instance, that would be fairly early in the development program.
So something that’s preclinical. We still have to go through an IND process and several early clinical studies, which can be done very quickly, but at the same time, does not advance milestones as rapidly as we’d like here to create the value that we’d like to see.
So that’s why we’re adding in this external focus. We’re actively seeking assets that are in Phase 2 or later, Phase 2-ready or later. Of course, these earlier-stage programs have to be balanced with the later-stage programs where we believe the valuations are. I think we have a unique opportunity. The valuations are depressed at this point, just given the capital markets. Everybody is, including us, at this particular juncture. But this is an awesome time to actually look for things. We don’t need a candidate, so we can be opportunistic and look for the right one.
Turning now to the update that Corium has passed along through us and what we’ve kind of been able to ascertain. We get a lot of questions on AZSTARYS and Corium and the partnership there. Corium has provided us the following update. And based on what we have been told, they are very positive about the launch so far. They like where they are now, and they have not changed what they believe they can do in the future and where the opportunity really exists with AZSTARYS.
So we’re excited to hear that. And based on the data we’ve seen and how we’ve been following them, we agree with that. It’s exactly where it needs to be. They’ve done the right steps to get here, maybe a little slower than everybody wanted, that’s just — that’s not the expectation that any of us have had. The update that they recently provided here is that we have a full national team staffing in place. So as of a few days from now, they’re going to have effectively double the size of their sales force from 45 at the end of the year to 90 now. I do believe they expect to add some to that. But I don’t have that definitively.
There will be — I think what’s more important, you really see the results of some of that effort, which is the added 700 new prescribers in the first two months of this year. 60 of those or 60 of the previous ones as well have already written more than 30 prescriptions. And then remarkably, and I can attest to this, over 2,600 pharmacies have spent AZSTARYS. Luckily, I can actually easily get my script now. And I think that’s a big part of this.
As of today, over 110 million commercial lives covered, this does not include the entirety of Medicaid, which we believe we’ll get an update at some point. In this 110 million commercial lives, though, two of the three largest PBMs are already in place. And you can imagine if the other largest one comes in, that number will go up significantly.
So based on all of that, this is still a good opportunity for KemPharm. This is our foundation. This is our revenue. But at the same time, our focus has to be and will be on the development of other assets as they create more value for KemPharm and the organization. The current growth trajectory based on what they’ve been able to do this year does lead us to believe that there is the potential for earning sales milestones this year. So that’s certainly within our expectations.
And with that, I’m going to turn it over briefly to LaDuane to talk about the financial position.
LaDuane Clifton
Thank you, Travis, and good afternoon, everyone.
Travis has already made reference to all of the really restructuring that we’ve done to our balance sheet throughout 2021. And that’s really led us to a solid place of strength period as we look at full year results for ’21.
Q4 revenue was $2.6 million, and full year revenue was $28.7 million, and both those were derived primarily from royalties and also consulting service fees. It’s important to note that the consulting arrangement, the contract we’ve been under ends this month. And so there might be a reduction of those, particularly with the recent approval of ADLARITY. But we do think some consulting fees will continue going forward as we continue to support some work that’s being done with AZSTARYS, et cetera.
Q4 net loss was $2.7 million or $0.08 per share, and full year 2021 net loss attributable to common stockholders was $62.9 million or $2.11 per share. If you look at the next line, you see that the net operating loss was $2.8 million for the quarter, and then we actually had net operating income for the full year of $7.7 million. So there’s quite a difference between those 2, between net loss and net operating income. That’s driven by a couple of noncash items, about $54 million of a deemed dividend that’s sort of a noncash item related to the warrant exchanges we did and also a $16 million sort of paper loss, again, noncash on the extinguishment of the debt.
As we look ahead and given the time line and the development energy that’s going into 1077, we do expect R&D expense to increase during 2022 and going ahead as that program gets started. With regard to our balance sheet details. As Travis has already mentioned, we ended the year with a strong cash balance of $127.8 million. And certainly, all debt has been eliminated, and along with that, all interest expense, notably for the income statement.
We did put in place the share repurchase program. And as you look through the details in our 10-K that will be filed later, you can see what activity has been there. And then, of course, as Travis has mentioned, all of this has put us in a strong position as our cash runway — even with a cash burn that’s going to increase with development increasing, it still takes us well beyond 2025, and we can fund everything we need to do without needing to raise capital again.
So with that, Travis, I’ll turn it back to you.
Travis Mickle
Yes. Thanks, LaDuane.
Turning now and looking at some near-term milestones, I suppose a few long-term ones, where KP1077, looking specifically at IH. Again, we just conducted our Type B meeting with the agency, very receptive to the product, product idea as well as the filing of the IND, which should happen in the second quarter of this year.
At the same time, we’re roughly thereabout. We’ll be initiating a cardiovascular differentiation trial. We’ll give more details about that to come. But that trial, functionally, will look like SDX versus the current methylphenidate products at high doses to distinguish the safety features related to heart rate and blood pressure.
We also expect in the second half of this year to initiate this Phase 2 trial for KP1077 with results from that top line results in the first half of next year. On its heels will be KP1077 for narcolepsy in related sleep disorders and related symptoms, where we could have a Type B meeting and an IND filing for that particular product this year, an initiation to follow with that. As well as, as I mentioned previously and not highlighted here, the potential is there to add an internal candidate as soon as next quarter to our pipeline of opportunities.
And to sum this all up, our focus is and has been in the development programs, but I think there’s a lot of value here that’s certainly in — within the company based on our various programs and various initiatives and efforts. I mentioned the IND filing in the Phase 2 trial initiation, the cardiovascular trial initiation. That data from the cardiovascular trial will be in the third quarter. So it’s a fairly valuable endpoint, data point that we’re going to see in the third quarter of this year.
Pipeline expansion moving internal candidates forward, looking for external opportunities that are very synergistic with our strategy. AZSTARYS is fully going now. So watching what Corium will be doing and relaying their efforts on. We have requested and do expect that over the next quarter or so, that Corium will host a joint call with us.
So it provides you a little more color on the launch and how the product is going. We did this prior to approval, and we hope to do that again as soon as we can. We certainly don’t want to distract them from making sure they do everything they can on the AZSTARYS launch, at the same time, providing an update as we can.
And then as LaDuane mentioned, I mentioned again, this is all based on the fact that we have available capital. We don’t need to raise capital. We’re not going to be going out at this point. And I think that really creates a very strong company, a very strong opportunity built for the future.
So with that, I think I’m set up and ready. We can take any questions, if there are any.
Question-and-Answer Session
Operator
[Operator Instructions] We have a question from the line of Jonathan Aschoff of ROTH Capital Partners. Your line is open.
Jonathan Aschoff
Thank you. Congrats on the progress, guys. And I had a question about — it’s great when valuations are low when you’re shopping, but just how receptive are the people you’re seeing out there, from what you might want to acquire an asset? Just how receptive are they to sell down here?
Travis Mickle
I think there’s some receptivity. The kinds of assets that we are focused on present unique opportunities, right, because we have our technology, they can add prodrugs. We can add runway to IP. So it’s more than just a cash sort of outlay approach. And I think the receptivity is do something more strategic, and that’s where our head has been as well.
LaDuane Clifton
Along that line, I would just add, Travis, that also, people find themselves since the capital markets are sort of dried up to the extent that they have a good product but can’t raise capital. They also are more receptive from that side of it.
Jonathan Aschoff
Okay. I was wondering if you could say anything about what Corium is coming up against in the market now. I know it’s several months and it’s not that long into a market where there are several drugs. But can you give us any more color as to what might be the biggest thing there pushing against?
Travis Mickle
Well, I think they’ve overcome it. And there was — provided an update in the fall on this. The biggest hurdle was the COVID and then the COVID lockdowns that happened again and many doctors’ offices hadn’t reopened. But they come up with other means to get touches into physician offices.
And so they believe they’ve overcome that and just kind of start the new year. There’s been no clinical pushback. The clinical profile and the patients who have been on the product love the product. There’s refills happening. It’s just that it’s about getting that momentum and of course, that payer access, so that you don’t get any rejections.
Jonathan Aschoff
Okay. And lastly, a simple question. Do you expect OpEx to drop a little in the first quarter, like it did last year, kind of maybe on to an end of year heaviness in noncash stock compensation? Or is it going to be kind of up and away from the fourth quarter ’21?
LaDuane Clifton
No. I think in terms of operating expenses, the dip-down that you’re describing, it sort of happens historically. It likely will occur again, Jonathan. A lot of the spending related to 1077 is probably going to begin to hit more in Q2 and beyond than really in Q1. So I think your expectation is reasonable.
Operator
Thank you. At this time, I’d like to turn the call back over to Travis Mickle for any closing remarks. Sir?
Travis Mickle
As we look forward to the rest of 2022, it’s a very exciting time, a number of different milestones in front of us, a full national launch of AZSTARYS behind us, and we’ll see how our partner there performs and is able to take that forward. Look forward to more interactions, more updates and more details as many of these milestones are met. I appreciate your time today. Thanks, everyone.
Operator
And this concludes today’s conference call. Thank you for participating. You may now disconnect.
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