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

Ladies and gentlemen, thank you for standing by, and welcome to the KemPharm, Inc. webcast and conference call. [Operator Instructions] I would now like to hand the conference over to your speaker for today, Jason Rando with Tiberend Strategic Advisors. You may begin.

Good afternoon, and thank you for joining today's call to discuss the amendment to the license agreement with an affiliate of Gurnet Point Capital. 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 your questions. With that, it is my pleasure to introduce Travis Mickle.

Thanks, Jason. And thanks, everybody, for joining today. As many of you are aware, back on March 2 this year, the FDA approved our product AZSTARYS, the new once-daily treatment for ADHD. Since that time, we've been working diligently with our partner, Corium, as well as Gurnet Point Capital and others in order to make that product available as soon as possible. All of us kind of focused on a second half launch for that particular product. Since that time, we've also been conducting our own assessment of the marketplace as where we think AZSTARYS can be. And based on that, based on the label that we received from the FDA approval and not just any one single element of that label but the totality of that label, including how the product is administered, use of [ apple seltzer ] water, the height and weight data that was very significant from a perspective of showing that there's little differences, the pharmacokinetic parameters and of course, the efficacy data, all of which are important when you consider how a product is going to be viewed by physicians and payers. When we looked at that particular overall approved label, we realized that we had a great opportunity in front of us. So turning to the next slide. I want to talk about the amendment to the license agreement that we have just announced with an affiliate of GPC. This particular amendment is focused on improving the overall economics for KemPharm, allows us to "put skin back in the game" at a stage in which we are doing very well financially and where we feel like the greatest opportunity for this product is in the next 5 to 6 years where we'll be able to help build a much higher peak value for this. And I am going to actually walk through some of the details here of the changes and the renegotiation of some of the economic terms. LaDuane is going to provide us a little bit of details around what we did as far as modeling for potential milestones, and then we'll give some closing thoughts. First and foremost, we did see a substantial increase in the potential regulatory and sales milestones. They went from $468 million, up to $590 million. We added 3 top-level -- we added a new top-level sales tier for royalty rates in the U.S. net sales, which is great especially if we think this product is going to do very well. And most immediately, we are eligible to receive a $10 million regulatory milestone for the approval as well as another $10 million milestone for the DEA scheduling, which should happen on or around June 2. There's also 4 additional sales milestones, 3 of those are at early sales levels. So something that we would expect, say, over the next few years as well as a new top-level sales tier, which is considerable. Overall, the sales milestones themselves went from $420 million to $550 million, a substantial increase or an increase of $130 million over the previous agreement. So with that detail, I'm going to turn it over quickly to LaDuane, who's going to walk us through one of the comparisons that we conducted.

Thanks, Travis. I know all those details that we just reviewed can be a little confusing. So we thought we'd try to provide a picture to show you sort of a comparison of how the value has changed or at least the potential value we believe has changed. Here, you'll see the blue line on the screen represents the original commercial forecast that we were projecting or thinking about back when we first signed the license as well as the original terms of the license agreement. And these were very attractive, obviously, at the time, and we thought it was a great thing. But having the approved label in hand, as Travis mentioned, gave us a chance to really think about what does that mean to the commercial forecast. So the red line here then reflects an updated commercial forecast. Again, these are just potential and lots of assumptions, but at least it provides a basis for comparison. And also applied to it are the amended terms of the license agreement. You see, overall, it's easy to see that overall value could be much better both between having a better forecast in terms of a higher peak potentially as well as being able to achieve the higher level sales milestones. But also, you'll notice in the blue section I tried to put an oval there just to focus in. Part of the -- a component of this, as Travis alluded to, we'll receive $20 million essentially between now and the DEA scheduling. And that's less than the original potential of up to $48 million. However, what you see is we -- by adding the incremental sales levels at the lower levels, we were able to push a few dollars out and actually recoup them very quickly. And so we thought if investing some money now would allow us to optimize the initial commercial launch phase and ultimately be able to attain this higher peak and maybe even a quicker ramp, again, you can see all that in the red line, we thought that was a very sensible, frankly, a very smart investment to make. So this just kind of gives you a sense and overview of what we were thinking about here. If we go then to the next section, you'll see here, as I've already stated, this rethinking of the commercial forecast based on the approved label, we did that on our own. And then also, we're working with our partners at GPC and Corium. And I think we all agree that the ability to reallocate some of the resources to Corium's efforts in these early days of the launch would -- could be very beneficial to the product overall. And so based on that, we've agreed with them to take this, essentially, an additional investment in early activities so that we can potentially capture those benefits. It's interesting to note that really because of our success in restructuring the balance sheet earlier this year, really made it possible for us to even consider this. And I think that effort, while it was great in and of itself, opens up options and flexibility for the company so that we can continue to keep focused on long-term value creation. And we really believe if you think about the milestones that I just reviewed as well as the royalties -- the potential royalties throughout the life of the patent, I mean, remember, this extends to 2037. So you would have the value of the potential $590 million. But also, I haven't tried to quantify for you the amount of royalties that would also be coming in throughout that time frame. So ultimately, we are pleased that we could be in a position to make this adjustment. Travis?

Yes. Thanks, LaDuane. I think that's a great point. This -- in our viewpoint, just given what we know about the label, the -- our marketer, in this case, which is Corium, looking at Slide 8 here, we know that the opportunity is much greater. Much of the label and the differentiation came very late in the game. So we were faced with -- towards the end there, looking at a label that was better than what we had hoped for. And so with that, we both sat down at the table and said, what is best for the product? How do we best allocate all of our resources? And optimally, how does KemPharm and its shareholders see the greatest upside? And that's really where the focus of this has been. It's not certainly been any sort of disagreement between everybody. We're all in agreement that this is a great opportunity, a blockbuster potential in front of us. So let's work together, as we have from the very beginning, and make it the best success possible. Certainly, we're all now very incentivized to do just that. So with that, I would just give a very quick update that [ passed ] along from Corium. They are currently working diligently to build out the best-in-class ADHD sales force. Many of these folks, I know very well. Many of them have -- I've heard from our KOLs and some physicians that we know well that these are great guys, ones that they respect highly, ones they've known for decades. And we are very fortunate that we are in such a position to be able to rely on such great experiences. We've heard that there's been some good receptivity from payers. We'll always stay tuned to that, of course, and physicians as well. I know -- personally, the ones I've spoken to are just very excited about this and realize that it could change their methylphenidate prescribing. And we know our -- GPC is working to support not only Corium and all their efforts but as well as KemPharm in what we need to do from our side of this equation and helping with the manufacturing and the medical affairs outreach and scientific communication. We will be working diligently with Corium and everyone involved to make sure that this is the best launch that we possibly can give AZSTARYS. So just to wrap up a little bit here on Slide 9. The FDA approval has really led us to a great label, has really led to the deal that we were able to negotiate, originally taking it from what it was to something even bigger. Just by pushing out some early dollars, we're able to capture more, and we believe we can capture that more quickly over the next few years. Continue to work with Corium on the launch, again, projected for the second half of this year. Fingers crossed, hopefully that's around the start of the school year. LaDuane said that we're, again, in a great financial position. That financial position allowed us to do everything that we just said. And I think it's really the combination of those 2 factors. Now as we look forward, there's bigger and greater opportunities now for a company like KemPharm: no debt, great balance sheet and big future upside from the product with the renegotiated deal. I use the analogy a couple of times. You're a Super Bowl-winning quarterback. You just want to go out and you want to win a couple more before you retire off to the sunset. And so you negotiate a big upside. You reinvest in the team, and you go out and pick up some more good players. And that's exactly what we're doing here is reinvesting back into the product. And I think we're very excited about this opportunity. And so looking forward, we'll continue to provide updates. We have, of course, our pipeline products and support of Corium as well as APADAZ out there after its initial launch. So excited about all the opportunities and happy to take any questions if we have any.

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

LaDuane and Travis, how much of the new $130 million in sales milestones is the top highest threshold milestone. Can you tell us that?

Unfortunately, we still sort of have the same limitations with the details as it relates to what we're allowed to disclose. So I tried to provide that picture to give you a sense of that concept of timing. But unfortunately, those details are going to remain confidential.

I guess without disclosing milestone amount then, could you tell us, are the 3 new lower thresholds sales milestones now the 3 lowest?

Yes.

Okay. So you have 3 new milestones, where you didn't have any, rather than the fourth milestone -- I'm sorry, the fourth milestone -- the old first milestone is now the new fourth milestone. That's correct, right?

Yes. And that's really what I was trying to say. When we were putting that in like, for example, the press release, 3 lower-tier sales milestones, I was intending lower than the prior -- lower than the original. And then one new top level, so that would be at the highest level. Yes.

Okay. That definitely helps because [ there were biodollars and then there are biodollars ]. But those 3 new lower ones sound pretty good.

I would now like to turn the call back over to Travis Mickle for closing remarks.

Well, I do want to thank everybody for your time today. We've had a lot of questions about timing of payments. You can see why. Now we couldn't say anything. We were diligently working with our partner in order to reach this amendment, which we feel is really best for all shareholders of KemPharm. And so with that, I'm going to end the call and thank everyone, again, for your time.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone, have a wonderful day.