Zevra Therapeutics, Inc. (ZVRA) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the AZSTARYS FDA Approval Conference Call. [Operator Instructions] I would now like to turn the call over to your host, Mr. Jason Rando of Tiberend Strategic Advisors. Sir, you may begin.

Good morning, and thank you for joining today's call to discuss the FDA approval of AZSTARYS, formerly KP415. 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 the remarks, we will open the call to your questions. With that, it is my pleasure to introduce Travis Mickle.

Thanks, Jason. Thanks, everyone, for joining us this morning. My assumption is if you're on the call, you actually had the opportunity to see the press release that AZSTARYS, formerly KP415, was approved late last night. Today's day with FDA, that's actually not an uncommon event, no longer have formal office hours, as all of us tend to work from home and do things as needed. And that's, of course, put many shareholders on the edge of their seat. Of course, here at KemPharm itself, we were equally, if not more so, in that same boat. As everybody saw, of course, the product was approved. If you're familiar with the product, this is a new treatment for ADHD. It's a once-daily treatment, consisting of our prodrug of methylphenidate, known as serdexmethylphenidate as well as immediate release d-methylphenidate. Our commercial partner, Corium, expects to make AZSTARYS available in the United States as early as the second half of 2021, highly motivated to get this product out there. There's a lot of patient and physician need for products like AZSTARYS. This really is a very significant milestone for us here at KemPharm. Certainly, it demonstrates the value of the technology, the development team and the prodrug itself. This is a highly valuable license that we have with the affiliate of GPC eligible to receive up to 6 -- or $468 million in regulatory and sales milestones just related to AZSTARYS, including then on top of that tiered royalty payments. I'd like to take a minute upfront just to thank the team here at KemPharm. Just really an astonishing team. The label that I am going to walk through very briefly is simply best-in-class. It is an amazing label. It's not something that, until very late in the process, had fully materialized. That's not untypical in these processes with the FDA and label negotiations, but something the team here really put together their best scientific arguments, put in a lot of late nights, weekends, holidays, anything that was ever asked of them and more, and I'm very proud to work with such a talented group. And of course, those that support us, the operational team; my colleague here, LaDuane, CFO; everybody that really contributed made sure everything was taken care of so that could sacrifice and take those opportunities -- have the opportunity to do so. Thank our partners, GPC, Corium, for their dedicated efforts in supporting us, working alongside us as best as possible when typically, we're the experts in this space. And then, of course, I will take a second to thank the FDA. It's a lot of work to go through what is for them a fairly novel approach and try to think about why studies wouldn't be needed, why these scientific justifications for not doing additional work or really just encountering a new product like AZSTARYS. It takes a lot of time and effort, and we certainly thank them for all of that. So I'm going to jump right in here, and we're going to turn to the first slide, of AZSTARYS label. And I'm just going to walk through very briefly here some of the highlights. This was a 505(b)(2) application. As such, we referenced Focalin XR. So many of -- much of the language that you're going to find in this label is actually directly from a Focalin XR label or other methylphenidate products. There's a number of these products out there. And the FDA and KemPharm relied heavily on the previous findings of safety and efficacy, including that class-wide language. And I would encourage to -- you can go to the press release. There's a link on the press release as well as on our website, and you can find it below here at the presentation. You can find the entirety of the label, all the safety information, warnings, precautions, adverse events, drug interactions, safety data. And this is a C2 product, and that is -- comes with its own black box warning for being highly addictive, prone to abuse and diversion. So I please encourage everybody to go and take a wholesome look at that label. But here, I'm just going to highlight how AZSTARYS is either similar to or better than our competitive products, in my view. Starting with section one, AZSTARYS is indicated for the treatment of ADHD, obviously, in patients 6 years of age and older. In this particular case, that's everybody, including adolescents and adults. We believe this is a highly advantageous position to be in. Certainly, you don't want to be restricted in age. We all know that methylphenidate works very well, basically in anybody with ADHD. So we're very encouraged that the agency had allowed this sort of language in the label. Administration information. Of course, this is a once-daily product. It could be taken in the morning with or without food. And additionally, what we found is that the capsules themselves can be taken whole or opened and the entire content sprinkled in water or with apple sauce. And we did a clinical study to show that. And of course, now it's in the label and exactly what we wanted to see. And this would be similar to the Vyvanse product as well. Turning to the next slide. This is actually something that was an analysis that was conducted as part of the approval process. And interestingly enough, this is the height and weight analysis. And this is different than the other labels in the class. What was found here -- and I know there's a lot of language around this, certainly on the slide in front of you, but also if you go to the label itself and look in Section 6.1. There was analysis conducted in our 12-month long safety study, looking at changes in weight and height over time. This is probably for -- especially for children, growing children, even adolescents. The #1 parent concern and a lot of physician concern as well is the changes that could be incurred when kids can't eat enough because they're really not hungry during the day while they're on their medications. And so they don't grow as quickly on these products. At least in this particular case, I think that's the presumption that's been out there. I know it can limit the corrective dose. So folks may do better in school and do better socially with -- at a higher dose, but because they're not gaining weight, they're maybe even losing weight, they're not growing appropriately. And so folks tend to limit that dose. What we found in our clinical study was actually fairly remarkable. In this particular case, there was no clinically significant change in height or weight over the duration of the 12-month study. And if that's not fully sinking in, I think you should really understand, this is probably a bigger issue than anything else in this label. It's the #1 concern that we heard resoundingly from physicians. I'm sure they get a lot of phone calls, a lot of questions, and now they can literally point to the label and say, this particular product does not show much of a difference. You might see an initial change. But overall, over time, the kids will recover. And if they take their medication every day, this won't be a concern in the long term. And I think that's truly a remarkable differentiation for this product. I'm going to turn now to Section 12. Section 12 looks at the pharmacokinetic profile. So this is the blood levels over time. It was found during our studies. There was no clinically meaningful difference in the exposure of dexmethylphenidate when it was taken either with a high-fat meal, sprinkled on apple sauce or water or on a fasted stomach. So that goes back to the statement, it could be taken without regard to food or water -- food or -- with or without food, excuse me. Additionally, and what I also find is interesting because this is in some of the other labels, it appears that if you do take it with food, the tmax, the maximum concentration that you get throughout the day to be lengthened from 2 to about 4.5 hours. So if duration is an issue or a side effects during the day because of a peak level, that's a little bit too high. Again, taking the product with a high-fat meal, which never hurts if you're trying to maintain your weight is something that could be to an advantage. It could be useful for a clinician or a parent. Again, this is my opinion. Tend to think of myself as an expert in the space, but certainly something that our commercial partners will be working diligently with to inform physicians and payers. Additionally, there's a statement about serdexmethylphenidate specifically that it is, of course, a prodrug, and it is likely converted to dexmethylphenidate in the lower GI tract. And this is important because we actually found during some of our research, our market research with physicians, there was a high level of awareness that Vyvanse is a prodrug of amphetamine. And we do want to position ourselves within the same sort of light. This aura that's been around this multibillion-dollar product for a number of years is that prodrugs perform better, is they're more reliable, more consistent. And whether or not that is true of a product like AZSTARYS, it's certainly something that we believe we should not be punished for here. So having the statement that we are definitely a prodrug, and it is converted in the GI, we believe is a differentiating factor. And last but not least here, turning to Section 14. This is the clinical section. And I will describe briefly here what this chart actually means. This is the chart regarding our efficacy trial. It's looking at the mean change in SKAMP scores from the baseline collected during the treatment with AZSTARYS. And this study -- this particular study was done versus placebo. It was a classroom day. So we take students, kids with ADHD. We put them in the simulated classroom environment. We give the math test over the course of different time points. So it starts at half hour, 1 hour, 2 hours, 4 hours, et cetera, out from there to 12 and 13 hours. During those math tests, we have folks called radars. They're sitting in the back of the room, and they're watching the kids. And they don't know which ones are on placebo, and they don't know which ones are on AZSTARYS. And they're rating their behaviors, they're rating their attentiveness and they're watching then for any sort of component that would be -- indicate whether it was treated or not treated ADHD. And just anecdotally, of course, anybody who's ever been around children with ADHD, I live with this every day, you'll immediately know whether they're on their medication or not. So it is a fairly robust method for rating ADHD therapies. So this particular graph is meaningful because it does show that there is a change from placebo. So in this particular point, when you look at the darker line here, AZSTARYS, it is always below placebo, which is -- means indicates that it's improved over the course of the day. So lower scores are better, kind of like golf. And in this particular case, through every time point that we measured, the LS mean difference was better than placebo from every time point from 0.5 hour to 13 hours. Turning now to the slide here, talk a little bit about our partnership with Gurnet Point Capital and Corium. This really has been a great partnership to be in, great leadership in both organizations. Many of you have heard me say time and time again, Corium is led by Perry Sternberg. He was really the lead guy at Shire for Vyvanse and the neuroscience business there. Worked with him prior to him going to Corium. Fortunately, for him that Takeda acquired Shire, and he's now the CEO of Corium. These folks are preparing diligently and have been for many months, if not years, for the commercial launch of this product in the second half of the year as well as getting everything that they need in place to really be able to launch, right? This has to be manufactured, and we're supporting that effort as best we can. The license agreement to date has provided us with $15 million at signing and NDA acceptance. There's been reimbursements up to $8 million and, of course, the addition of a contract service on top of that. So this has been -- well, on paper, it looks like $15 million, it has been much bigger than that for KemPharm. We are now eligible to receive up to $468 million in regulatory and sales milestones. And we're working diligently with our partner to assess at what point -- what triggers are there for the regulatory milestones. But we believe, based on the label, that we are eligible for the entirety of that regulatory milestone up to $48 million. And then last but not least, I just want to give everybody here a look into the future. Of course, this is a big event for the organization. But we will continue on, and we will have bigger events in the future, we believe. I've spoken already about AZSTARYS and this great approval event. But thinking ahead, we're going to have a launch literally in the next few months that we'll be supporting with Corium. I'm sure all of you will be watching intently on the progress of that launch as we will as well and certainly in a different position. I'm going to turn it over briefly for LaDuane to speak about our improved financial position, and then I'll wrap up with a little bit of looking beyond KP415.

Thanks, Travis. And it's notable, as many of you are aware, that during the first part of this year, back in January, we really saw the efforts of a lot of work and planning come together to lead to us being able to completely restructure our balance sheet. I look forward to providing a little bit more details around that when we're able to report out our earnings results soon. But suffice to say, where we stand today, we completed offerings, which brought in gross proceeds of more than $94 million onto the balance sheet. We were able to do a series of both equity conversions and actual cash repayment to the debt holders. We were able to bring ourselves to having exactly $0 worth of debt today, and it's really a great place to be debt-free today. And we have a meaningful amount of cash on the balance sheet as well. Through this process, we were able to regain our listing on NASDAQ Capital Market. We started trading again on January 8. And at this point, with a cash burn, that remains at around $1 million a quarter or so. The amount of cash we have through all of this extends well beyond the relevant period. So for years potentially. So that leaves us with a lot of options. And today's approval announcement is certainly a big part of that. KemPharm is a completely transformed company, both through the financial restructure and with the approval of this product. And it's really an exciting time as we begin to think about what that means regarding value creation for shareholders in the months and years to come. Thanks, Travis.

Yes. Thanks, LaDuane. So looking beyond KP415, and we announced earlier -- late last year that we actually entered into an expanded services agreement with Corium. Of course, this adds some additional revenue. This is a fairly short-term sort of arrangement. But at the same time, it does show the -- really the collaborative nature between the 2 organizations. They recognized the talents of our development team, wanted to take advantage as best they could of those talents, use them for some of their own development products. And we're excited to continue to work with them to advance those products. That, I believe, should show shareholders, hey, look, there is an alignment here and that alignment goes well beyond just simply milestones and royalties in the arrangement with GPC. We announced that the KP879 IND cleared with the FDA. We will be initiating clinical trials as soon as we can. That's expected to happen about midyear. This product is for stimulant use disorder. It's an exciting product. There is no other product out there that treats stimulant use disorder. And it is an option product that post our Phase I study that we plan to initiate that would be available for GPC to license at that time. And then last but not least here, interesting enough, I think many of you may not even know about APADAZ, but this is our first approved product, and it was partnered with KVK. This particular product, we will give more updates on because I'm telling you right now that it is doing well, that we are seeing traction. We are seeing things start to flow through the system. And it is officially launched and available, at least in the state of Alabama. So we are very excited about that. Certainly, that will start to show some traction here over the coming months. So with that, I'm going to wrap up and ask if there's any questions from analysts.

[Operator Instructions] Our first question comes from Jonathan Aschoff of ROTH Capital Partners.

Congrats on approval. I would like to know. It sounds like you touched upon it, but in your view, what is the most differentiating part of your label? And if it is, in fact, height and weight, what were those median height and weight differences, your group versus historical control?

I mean that's a hard question, Jonathan, because it really is a multifactor, right? It's not one point. It's the culmination of all of these different points that really do distinguish a product like AZSTARYS from other products. Just knowing this space, you couldn't go in with one thing. We've all been aware of other products have been developed over the years, mostly focused around patient compliance. And while that's an important feature for those products, certainly, it hasn't differentiated them enough to really compel the market to move forward. Specifically, on your question about the height and weight, the Z score is really the normalized score for natural growth of children and adolescents. So comparatively, there was a -- still, there was an increase over the 12-month period of time in both height and weight, and there really wasn't -- certainly, as it stated right in the label, there was no clinically significant change during that time. There was a very small lowering compared to the average Z score analysis. This is different in that it's not found with this sort of language in any other label. Certainly, the clinical efficacy has been and will remain one of the major features of the product because if it doesn't perform well, who really cares if height and weight can be changed. That's not as important. But the performance of the product has to come first.

So what are those medians, though, for the control group and the drugged group over your treatment over your trial? Do you have that?

There is no control group in this. This is a 12-month open-label study. So the control group is what is calculated by the CDC for normal height and weight.

Okay. Regarding Page 16, the pharmacokinetic data in the label, Page 16 of the label, what is the history of companies using something like that to legally argue for a drug's differentiated onset and duration claims?

I guess, Jonathan, I don't have the label open right in front of me.

So it's the only PK curve in the label.

The press -- sorry, could you repeat the question?

Yes. There's a pharmacokinetic curve in the label. It's on Page 16. It's you guys versus dexmeth, and dexmeth ER. And I'm just curious, the lines are very different. And can you use that in marketing this drug legally to argue for a differentiated onset and duration?

Yes, because that's already in the efficacy section, right? You've already demonstrated that in the efficacy trial. Now this is important because this is our reference listed drug. So the agency has been consistent in providing the RLD comparison in the label. When this product, AZSTARYS is taken at steady state, those levels increase substantially. You'll have some carryover from day to day of methylphenidate. And that amount tends to average out and where you have higher levels at the end of the day and the very start of the day, but it does not reach the same peak level. And of course, has a nice up and then gradual down throughout the course of the day. I think that last part there about the gradual kind of elimination of the product over time is the deciding factor. It's not the up and down peaky sort of approach that other products have taken that tend to lead to more adverse events than anything.

Okay. A last question, if I may. I mean, I'm just going to ask, what is the milestone amount? And if you don't have the answer to that, is it still open to negotiation and label interpretation between you and Corium?

The total amount of the regulatory milestone at approval up to -- would be up to $48 million. To answer the second part of your question there, it is up to some level of interpretation. I -- this sort of label negotiations, while they started shortly after the late cycle review meeting, they literally went up to very, very late in the process. And that's -- again, that's not something that's uncommon in these events. So we still have to sit down with GPC and figure out exactly what everybody here is expecting. But we don't expect anything other than the $48 million that we're due.

Okay. And you can't tell me about any other different amounts, sub-$48 million and what triggers them based upon the label or if those even exist?

No, we can't.

[Operator Instructions] Our next question comes from Oren Livnat of H.C. Wainwright.

Sorry, I was on mute, amateur mistake. Congrats guys on getting to the finish line here and getting approval. I guess I want to follow up a little bit on this SKAMP efficacy. And just can you tell us what's your understanding in the real world, in the market, how important a differentiator is this curve that you ended up within a label that implies a certain onset and duration versus just the perception overall of a prodrug being "the Vyvanse of methylphenidate?" And separate from what impact it might have commercially for doctors, perception of the product, how do you think this label impacts managed care reimbursement relative to other brands and generics?

Yes. Oren, well, of course, we're not the commercial party here. So you have to be a little bit careful. I don't want to step on their toes at all. Everything I'm going to say is basically our best opinion, but I'm sure they know much better than we do. And we do have to be careful too of any regulatory concerns. But at the same time, it is my general belief and knowledge that when physicians have the opportunity to look at this and payers as well -- hey, look, they're going to use the label to discuss the attributes that were found in the clinical study, but it's really about the effect that the physician would see when they give it to their patient, right? What are they really seeing? And I think Ann Childress spoke about this pretty at length during our presentation back in December, when we were talking about the commercial value here. She has some patients that literally do better on products like AZSTARYS and really can't do well on other products like Focalin XR and Concerta. So it will be that physician-patient experience that really determines the go forward. But I think there's enough here for at least to get an audience, get adoption and have payers really see that it is differentiated from other products. The prodrug aura sort of thing, I mean, you could imagine something that's just as simple. This is the prodrug option available for methylphenidate to kind of -- you're already familiar with prodrugs of Vyvanse. I can't tell you how persuasive that's going to be at the end of the day. I certainly like to think that just simply being a prodrug has some value. But at the same time, if it doesn't perform after, say, initial adoption, that will be the real determinant, right, of the long-term value of the product.

Well, I think based on your data and your KOLs input that we've heard in the past and your PK curves, I think everyone's probably reasonably comfortable that your real-world duration and onset are probably closer to what you guys want -- or believe it to be and have showed with some adjustments to your data. But I guess, can you just remind us, managed care, obviously, is making nobody's life easy. And I'm just wondering if you could give us any sense of -- just remind us maybe what are other brands that have launched in the last several years? What kind of coverage do they have in terms of prior auths and step edits and approval rates, that would be helpful?

Yes. Oren, again, our focus is development, and that's why we partnered in -- so I couldn't tell you, honestly, what the commercial coverage looks like for those other products. I'm not going to speak poorly of my distinguished competitors here. But at the same time, I mean, what is their differentiation? You can look across the board, pretty much everything that's been developed since Vyvanse, and it's really just patient compliant forms. And we have that already built in and so much more.

Okay. And I guess just to follow-on, on Jon's question about the milestone. You said it all came together kind of late. And so you're still in ongoing discussions. I understand you're not going to give us any sort of different levels of potential milestones. But can you just remind us, if possible, what are -- what were the key parameters that determined this milestone level? Was it -- was height and weight relevant? What sections of the label are relevant? Or is it just -- was it just around potential onset and duration clients?

Yes. There was really only 2 features that were present in the agreement that you could have access to publicly, which are approval and then the 30-minute to 13-hour label.

Thank you. I'm showing no further questions at this time. I'd like to turn the call back over to Travis Mickle for any closing remarks.

Well, I really appreciate everybody's interest continuing following of the story of the company and, of course, AZSTARYS. It really has been an exciting time. The organization has really come so far over the last year, the last few years and really since we had some initial trouble with the FDA in our opioid product. All of this has been a great experience and something I'm really looking forward to seeing AZSTARYS launch, professionally, of course, as a shareholder, of KemPharm and then really, probably most importantly, personally and for my own family. This will be something truly different. And if possible, I'll be the first script ever written. So I appreciate your time again. Happy to give you the good news, and thanks, everyone.

Thank you. Ladies and gentlemen, this does conclude today's conference. Thank you for participating. You may all disconnect. Have a great day.