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

Hello. Thank you for standing by, and welcome to KemPharm Pipeline and Clinical Development 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, Jason Rando from the Tiberend Strategic Advisors. Please go ahead.

Good afternoon, and thank you for joining our call today to discuss KemPharm's updated clinical development strategy and strategic focus on CNS and rare disease indications. 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 remarks, there will be a question-and-answer session. With that, it is my pleasure to introduce Travis.

Thanks, Jason. Hello, and welcome, everyone. Typically, I would start off any call reminding all of our listeners of the great things we have done over the past few months. But today, I'm not going to rehash the past as today's call is squarely focused on the future. Some of these changes and insights are subtle shifts from where we have been historically, while others move us forward in new directions, and if all goes as hoped and planned, towards bigger opportunities. For much of KemPharm's existence, we have solely focused on the discovery and development of prodrugs. While prodrugs are a part of our future, especially serdexmethylphenidate or SDX as it's known, we will look beyond them to new opportunities in areas that represent potentially higher value in the marketplace. Additionally, in the past, we focused on licensing our development products to other commercial organizations. While we've been successful in that approach, we now intend to look for programs that we can commercialize in a measured and capital-efficient manner while retaining the vast portion of the commercial upside. CNS niche markets, CNS rare diseases, rare diseases themselves allow us that possibility. To help illustrate the strategy and focus, I believe this table provides us a great outline. Fundamentally, this approach is built on a solid foundation of Jazz and potential AZSTARYS revenue. With those as our support and backing, we believe we can execute on our development plan without the need for further funding. On top of that solid foundation, working from what we already have in SDX makes a lot of sense as long as it would fit the value proposition we are trying to build towards. Fortunately, it does just that. Given its properties, SDX is suited for a number of potential indications. If we think about the market value and the ability to commercialize, rare sleep disorders is a highly valuable space with high unmet needs, multiple potential indications and strategic benefits. Certainly, this space has been dominated by Jazz Pharmaceuticals, but recent players like Harmony Biosciences have proven that differentiated products can compete and do well. When we focus a little more on SDX, we evaluated a host of criteria for our lead development program, including the market, scientific risk, timing and cost, and we identified that idiopathic hypersomnia was the ideal first indication for SDX. I will outline in detail how that is and what we believe that potential value could be in just a moment. With a solid foundation in our first development candidate in hand, the strategic focus of KemPharm will be continuing on to develop further differentiated assets in the niche CNS/rare disease space where we have the opportunity and possibility to commercialize those assets and retain most, if not all, the value from those development programs. This pipeline of development products will be generated from both internal and external sources. So in addition to SDX and our other possible product opportunities, we have actively engaged in identifying new novel clinical stage candidates that can add to our pipeline and potential near-term milestones. So now turning to the pipeline. We can see from the pipeline itself, I actually have to turn to the pipeline, too. As the pipeline shows here, KP1077 really is a great example of exactly what we're looking for when we assess any of the assets, internal or external. We have near-term clinical catalysts. It's a Phase II asset or later, where again, the rare or niche indications, idiopathic hypersomnia is a rare orphan disease, so is narcolepsy. And then on top of that, you have to measure that with risk and reward. Certainly, it's a much lower risk because it's SDX. It's already 70% of the component in an approved product in AZSTARYS. High reward, this market is untapped and I'll go through what that potential could be. And then, of course, a reasonable cost for development. If it takes more of our available resources, it probably does not make as much sense. So with that, KP1077 in idiopathic hypersomnia is our most advanced candidate. We are looking to add to that indication. Narcolepsy makes perfect sense to add on, a large market opportunity. So it is more crowded. As far as competitive landscape, it could be a great bolt-on to an idiopathic hypersomnia claim. Additionally, we have other thoughts on sleep disorders, both internally and identified a few external candidates. And still in our pipeline and still under development would be KP879 for stimulant use disorder. We will receive our final Phase I data here shortly. And then I will speak more about this particular program a little bit later in the discussion. I would take a moment here just to add a little bit of something about the ROFN and ROFR, so the right of first negotiation and right of first refusal for these assets. So there have been a number of questions I can quickly address. So for any one of these clinical candidates related to SDX, which would -- basically everything here except for the in-licensed or acquired product candidates, potential candidates. GPC, Corium compound have a right of first negotiation after the first human proof-of-concept study. So this would be the first study conducted after IND is open for each product candidate. So as you're aware, there's already an IND open for KP879. So once the final data package is available, we will provide that to GPC. They'll have the ability to execute on their right of first negotiation. We're under no obligation to accept economic terms negotiated during that time. Certainly, we can as well if they're beneficial. But at the same point, then that converts to a ROFR on any valid third-party offer. So for us, on any of these candidates, we control exactly what we want to do with that. And just have to offer it up if somebody else comes to make an offer to acquire or license that product. So I just wanted to clarify that, that would also come into play each time we add an indication or new product. So KP1077 for idiopathic hypersomnia, same with 1077 for narcolepsy and anything to do with SDX. Moving on to the next slide. I just want to highlight for everyone here the upcoming clinical, regulatory and business development milestones. So you see from the pipeline, we're trying to build each one of these product candidates. This quarter, we have 2 milestones that we hope to meet, 1 Type B meeting with the FDA for KP1077 as well as the final trial results for KP879. IND filing is planned for midyear. So we have it here as late as third quarter, but it really will be around that midyear time frame. Once the IND is open, then of course, we can start the Phase II trial. We do have a planned study that we can actually conduct before we get the IND opening study done as SDX has been studied under the 879 IND. It's a Phase I cardiovascular differentiation trial to show that the safety heart rate and blood pressure measures are actually different than other immediate release or extended release stimulants. We already know that we've seen safety benefits for abuse and other measures with SDX given its scheduling status. So we're very excited about the possibility to show with this trial, a safety difference. The Phase II trial will start in the third quarter and it should read out top line data in the first half, really the second quarter of 2023. When we start to move into narcolepsy, it would just be kind of as you can see, staggered there from the KP1077 for IH with the Type B meeting after you get the IND filed and the study underway as well as the trial initiation would be several months lagging from that. And we do hope sometime in the second half of this year to have additional clinical stage candidates, more than likely that could come from external sources through in-licensing or acquisition. But it also may come from internal sources as we start to identify new candidates in some of these rare diseases and sleep disorders. So moving on to the next slide here, just briefly on the transition to Slide 7. As I mentioned before, we really see KP1077 as a great example, a perfect example of a clinical candidate that we intend to develop and potentially commercialize. So a lot of this will be, of course, our first candidate and what we're focused on initially, but it also gives you a sense for what we would be looking for, whether it's an internal or external candidate that we move forward with. So specifically looking at IH, this is something we haven't spent a lot of time informing you of the disease state and the population here. This is a rare disease. There's roughly 37,000 individuals diagnosed with IH that are actively seeking treatment. The total population has been estimated much larger, but it's not really well known. It's more of a diagnosis by elimination of other issues. So if you don't have narcolepsy, if you don't have sleep apnea and so forth, you kind of get left with this IH sort of designation. The symptoms here are highly debilitating. Many of the KOLs we've spoken to have said to us that IH can really be worse than narcolepsy. And we all know that's a severe disease and it causes a lot of issues for those poor individuals that have that problem. Chronic daytime sleepiness, this isn't just a normal sleepiness. This literally is -- you're feel fear to drive a car because you're just not aware enough to do so. Even simple tasks like walking in your home, moving around. These things are chronically a problem for everybody with IH. Long and unrefreshing naps, extreme difficulty waking. So I think all of us can know that it could be difficult at times to wake up in the morning. These individuals have multiple alarms, usually a caregiver or somebody else in the household is also told, "I have to get up by this time." And still, it's just completely difficult for these individuals to get up and wake up. Severe brain fog, this is probably 1 thing that we heard time and time again that's not treated by the current treatments at all, off-label or on label, just the inability to have any sort of level of executive function. And then about 25% of patients are what's known as long sleepers. So excessively long sing times greater than 10 hours, some 12, 14 hours. And this is day in, day out. So literally, their life is some form of disability, can't hold jobs, difficulties in social situations and family as well. Many of the KOLs that we also spoke to have identified that depression is a common comorbidity. Obviously, if you have these conditions, that could be problematic and could lead to depression. And the current treatments are really inadequate. Many patients say it's just poor medication effectiveness. It helps, but it doesn't help enough. And it certainly doesn't take away the vast majority of the symptoms they experience with IH. Turning now to kind of the competitive landscape where we kind of see ourselves. There is an unmet need in IH and -- that we have seen repeatedly. Jazz has recently had the Xywav product approved. It's -- this is also used in narcolepsy previously and they had a formulation known as Xyrem that they're replacing with the Xywav product. And looking at this product, again, it's certainly very expensive, $187,000 a year. And then on top of that, 75% of the patients in their trial to get to the approval of Xywav for IH actually either had to add a stimulant or maintain their stimulant treatment. So while it did help, it wasn't the cure or the fix all your symptoms sort of treatment. Really, monotherapy in the study was 25%. So based on that, I think you come up with your own assumptions on how well a stimulant does address some of the symptoms with IH. There's 3 product classes that are used for dominantly off-label; Provigil, Nuvigil, modafinil products. Again, those are mostly generic. You can see Provigil pricing around to about $24,000 a year. Lots of issues with these products, serious adverse events and a lot of drug-drug interactions, especially with hormonal contraception and antidepressants, which I just said is a comorbid condition. You have generic extended-release and immediate-release Methylphenidate products which we have heard do help, but they do not -- they're just really limited in how much they could use. A lot of the dosing is limited by the label as well as just by the fact you get higher blood pressure, heart rate and adverse events with high doses of immediate release and extended-release products. And then Harmony did announce that they're intending to develop Wakix their product currently for narcolepsy now for -- try to develop that for IH. Again, significant price point and a lot of drug-drug interactions, more of a -- between a stimulant non-stimulant treatment, works well for some, doesn't work well for others from what I've heard. So moving on, well, okay, we got a sense for the marketplace. We know our competitive landscape and it's a great opportunity. Now what is it about KP1077 that we can differentiate here? So this product is 100% serdexmethylphenidate. Dosing is unique. It can either be taken before bed time or before bedtime and upon waking. So 2 options depending on the patient needs. Features and benefits that we've already demonstrated. So this is something we already know based on our clinical data for the approval of AZSTARYS. This is a C-IV, so Schedule IV by the DEA, less than any of the other methylphenidate products at C-II. There's no drug-drug interactions, as I mentioned before. The benefits that we hope to measure in the study, greater tolerability is probably the biggest benefit that we could see. So greater efficacy functionally, where, again, we can give doses now that address some of these more problematic sleep inertia, brain fog at doses well above what you can do with other stimulants. And this is due to the profile, which I'll outline in a second. The nighttime dosing uniquely addresses the sleep inertia. It comes on really before waking so that your peak level is about where you should be when you wake up 8 hours later. The morning dosing can help really address brain fog, and that's, as I said, one of the more problematic symptoms of IH. And then, of course, the lessened effect on heart rate and blood pressure. This is a head-to-head sort of difference with other methylphenidate products and it's what leads to greater tolerability and higher doses. Of course, as an orphan drug, this would be an orphan drug designation possible, fast-track eligible, breakthrough designation eligible. And similar to AZSTARYS, we have solid IP through 2037. There will be additional IP that will be filed and if that's granted, would extend that to be on that time period. So just turning here to the data on the next slide. And this is based on the results of our KP879-101 study that we announced back in December. And so I just want to walk through this quickly here. But if you look at the blue curve, the once daily, taken at 10:00 p.m., what you see is that you get this delay. So functionally, you get a flat curve. And this is after you've taken at 10:00 p.m. every day, say, for a few days, so at steady state levels. Get us a ramp, that will start to ramp up and start to reach peak levels around 6, 8, 10 a.m. and then slowly trail down the rest of the day. Where sleep inertia or waking is the primary issue, this may be sufficient for some IH patients. So having this dosing available, we think, is advantageous. If you think about, though, for the vast majority of IH patients where they'll have brain fall throughout the day and waking issues, then the morning dosing and the nighttime dosing will be the main feature. And that's highlighted there in the orange. So take the first dose at 10:00 p.m., it's starting to ramp up, so you can wake up and remember to take your 8 a.m. dose where you're actually going to get a higher concentration than in the afternoon and evening where, of course, you would want to see retention of brain fog, back to normal social activities and the ability to work throughout the day. We believe and have spoken to KOLs, this is a very advantageous profile for IH treatment. So I'll just quickly review as we walk through what we believe we can do here for IH. So value proposition, these unmet needs that we're addressing, this is more debilitating than narcolepsy, and it's mainly due to the waking and the brain fog. That doesn't occur in narcolepsy. It doesn't occur with most, if not all, other sleep disorders. And as I said in the previous slide with the data, our PK profile allows us to give a higher dose and to be able to maintain that concentration of methylphenidate throughout the entire day and then ramp them up early in the morning when taken at night before. And that, we believe, is the fundamental basis for the differentiation of this product versus all others. Certainly, no approved stimulant therapies for the treatment of IH, and which we believe is very beneficial. Most of the products that are out there for treatment have some sort of other issue, and that's highlighted here on the next slide, the value proposition. Looking at the comorbidities and patient demographics, it really does complicate the treatment. Brain fog is a big issue. If you can address it with a product that doesn't raise the heart rate, blood pressure, you can get higher levels, too, without adverse events, then you can give higher doses to counteract that. Half of the U.S. population has high blood pressure. And certainly, we know our pharmacokinetic profile will show a lower blood pressure and heart rate versus that of the current methylphenidate products that are used off-label. Modafinil products, the Provigil, Nuvigil have drug-drug interactions with contraception. They also have some pretty serious adverse events that could occur. And then depression is common comorbidity. Wakix and Modafinil, both interfere with antidepressant metabolism and have to be adjusted for that if you're on those particular medications. So with that all in mind, we turned to some payer research, really looking at the landscape, what analysts were saying about IH and what this market potential could be. And what I have here is really an illustrative example. This is not an absolute market share. It's really intended to be, okay, if everything looks beautiful and we can treat the vast majority of patients, we believe we could have a bigger opportunities than Xywav for sure, and it's really unknown what Wakix could do. We were looking at several different examples. Hey, look, 37,000 patients as the entire population. Xywav kind of the first -- analysts predict about $300 million in sales. And what -- you break that down after you figure out an average cost, that's about 3,200 patients. So going back to our original premise, we want small markets. We want to be able to commercialize. You only have to reach 3,200 patients. Obviously, that's going to be much easier than, say, a population like ADHD, where roughly 10% of all Americans have ADHD. So I think that's a little bit of an illustration there why we are choosing these spaces. When you look at the mechanism of action and improved efficacy of KP1077, that will be the major determining factor for the differentiation versus Wakix, Xywav and some of the generics that are currently used off label. Whether that's as a monotherapy or as a combination that we may consider using with sodium oxybate, Xyrem, Xywav or some generic equivalent or a prodrug version of that, those combo products like Vertex and Gilead have done really do add a new layer of product strategy that this has the potential to show improved safety profile, Schedule IV drug-drug interactions. Xywav has some barriers to uptake, a high discontinuation rate. You still need to have a stimulant on board, CNS depression, abuse, misuse potential. The REMS program can be fairly complicated. So I believe if you have narcolepsy or IH, you can get through that. And of course, the very negative stigma associated with GHB. Again, it's oxybate on the label. But in fact, it actually is -- GHB is the active ingredient here. They're both the same thing fundamentally. Some things that are in our benefit. Xywav promotion has been very good, building a whole awareness campaign, working with the Hypersomnia Foundation. So they will build the market for us, that would be a great opportunity. And then Wakix, we've outlined a little bit, has some barriers to uptake. The drug-drug interactions can be problematic. They have some AEs and potential other issues that we believe will limit that opportunity with NIH. So with that, I'm turning now from KP1077 and our approach there with the IH. Now we'd like to look a little bit and discuss our approach with business development and where we want to move now. So Slide 16, I believe, I'm on. Just want to make sure I'm on the same slide. Our strategic focus has been and will be, after the internal review of our own candidates as well as any external candidates based on a number of different criteria, commercial opportunity, risk and time, cost and need. Now with that commercial opportunity, we look across the landscape, payers, physicians and competitive. The risk, clinical development, regulatory, I believe that's also assessing commercial risk as well. And then time and cost and need. I mean, obviously, if it costs more and it could be the same value, you would prioritize the cheaper version first if the value proposition was the same. But there's other strategic considerations, right? Who else is in the space, what's the interest, where's investors. Where do investors want to see money flowing into or where is their interest for drug development? And all of those are taken into consideration. When we look external to KemPharm and even when we look internally at things we could do, neurology and neurodegenerative diseases like Alzheimer's and Parkinson's, Huntington's disease are obvious targets for this approach. There are some psychiatric disorders that would be more of a niche opportunity and certainly market opportunities like psychedelics that where, again, investor interest is high. Rare diseases that speaks for itself in other niche markets, but then as well adjacent to related therapeutics. This really could be anything related. There's certainly some ability to kind of overlap say, a GI, that's where we focused actually most of our delivery technology on. Metabolic diseases heavily involved in our approach with prodrugs, it was metabolic processes as well as endocrinology and others. And fundamentally, we're seeking Phase II assets or later, and it's part of our evaluation criteria for in-licensing or acquisition. Later stage, obviously, it's going to give you clinical milestones and catalysts sooner. And then once you're able to move that faster, you'll have, again -- be able to make up time with a near-term commercial opportunity. SDX itself actually presents its kind of a pipeline in a pill. You have not only IH, but as we discussed before, narcolepsy. So after the IH trials are underway, we will start to focus on narcolepsy. There's quite a bit of overlap there with clinical sites and development expertise. So we'll kind of utilize that across the board. One thing I didn't touch on in detail was KP879. We believe, again, this product is quite compelling. The opportunity is still there. And certainly, the scientific data from what we received in our Phase I study was extremely compelling. Great data, showed exactly what we wanted to see. What we did after this analysis was really look through everything. And if you return briefly back to the slide before, the commercial opportunity -- I think there is a commercial opportunity there, but it's not as apparent. The competitive landscape in drug development is actually fairly large. There are quite a few candidates being developed for stimulant use disorder. Payers were a little skeptical when it came to what they would pay for it. So there was ambiguity. It could be high, it could be low depending on the attributes. I think that's obvious with most early-stage programs. The risk was higher. The program, as we already said, took a lot longer just to do the first study than we had hoped. We thought we'd have results faster. But ultimately, we met our time lines, but it was quite pushy there. Patients aren't the most reliable. And of course, there's never been a product approved for it, so the development and regulatory risk, as we well know, being the first in class can be great from a commercial perspective as you get out the door, but most of the time, you get punished for it because the FDA doesn't know how to handle something that they haven't seen before. And I think really, it did also boil down to the fact that there is a high cost of this development. It would take a long time to work through. But we're not going to kill it. This is a program that we believe, if we turn back then to Slide 17, that working with government, academia and/or industry, that we could advance. There is interest from various parties -- third parties that we've met with in the past. They want to know about the program, keep updated. We don't have enough data for us to move forward with, but at this point, it's obvious that we're going to need a partner to move this outside of KemPharm at an appreciable pace. So still in our pipeline, still moving it forward. We're just going to seek a partnership and get them to help us to do that. Turning now to the business kind of side of this, the milestones and how we projected to move forward, I actually get to report here for the first time. I -- you probably already saw it in the press release that the AZSTARYS launch is actually gaining a lot of traction. As of January 1, Corium has reported to us, they have over 100 million commercial and Medicaid lives that have access to AZSTARYS. That's about twice the coverage from the beginning of October when we last discussed this publicly. Recent wins really did allow them to say, "Hey, look, we're going to go from this kind of smaller launch to a full national launch, expect that to be all in place by the end of January." So end of this month, we'll wait to have a full national launch. And then those accelerating launch efforts, the payer wins that we've seen do provide us support and clarity around what we think we could earn as far as sales milestones and royalties. And so we've kind of taken that all together with our cash equivalents, really believe that the available capital, combined with revenues, extends our cash runway through 2025 and beyond. So with our current plan and current development programs, we believe that, that's a particular case. That may be well beyond even the point in which the company could be bringing in more from AZSTARYS at that particular juncture. As many of you are aware, we implemented a $50 million share repurchase program back in the end of '21, in December, it runs through 2023. The ATM has not been utilized. LaDuane will be happy for me to pass that along to a lot of questions. We also intend to convert the current S-1 to an S-3. This will eliminate a lot of the potential filings that you see. It's not a new offering. There is no new offering being contemplated. This is just to take the current S-1 that we have to update literally every single time we do anything, prevent a lot of work cost as well as prevent a lot of confusion about what we are doing. And we're not raising more money every time we update the S-1. So just briefly, I want to touch on -- just to remind you of some of the milestones and wrap up here. So clinical regulatory milestones for 2022, looking forward to the final results of KP879 study, put that all in a proof-of-concept package, send that over to GPC Corium. 1077 for IH, that's a Type B meeting this quarter with the FDA, IND filing midyear, Phase I cardiovascular differentiation trial will start in Q2, should wrap up by the end of Q3. Phase II initiation Q3. Narcolepsy will follow about 6 months behind IH. And then kind of looking ahead, really, there are several things that I'd love for you to take away from this, but I really hope you can walk away with a sense for what we're hoping to accomplish, both in the near term and the long term. Fundamentally, we're focused on what we've done well in the past as well as trying to eliminate the pitfalls that we've seen not only with ourselves but with some of the other comparable companies at various stages in their development. This general approach was actually validated somewhat today with the acquisition of Zogenix, the announcement of the acquisition of Zogenix by UCB. I do remember back when Zogenix had an opioid extended-release hydrocodone that they were trying to get through an ad com in FDA, struggled to get it approved and then struggled to sell it. And then eventually, they sold that asset and were able to use that capital to focus on a rare CNS disease, rare form of epilepsy. And ultimately, that's what they were acquired for today. I believe it was for $1.9 billion with a CVR for some additional capital as well if they do well. So clearly, this is not a novel approach. I think it fits right within what our strengths are and has been implemented in the past. So now that, that is kind of where we hope to go in the future, we expect to see more and more catalysts around these events that we have seen already or that I've outlined in this presentation. So with that, I'd like to stop this portion of the presentation, take any questions from analysts that we may have today.

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

Travis, given what you know about 1077 right now and the correspondingly early data from Xywav and Wakix, what can you say about the comparison of these early data sets and thus, about any potential 1077 advantages or disadvantages, the exact data you have in hand?

Well, certainly, we know that this is going to have a stimulant-like effect, right? So Wakix has a weak stimulant effect, but it really helps wakefulness through a different mechanism, right, through the H3 antagonism. And so that's -- that works well for some patients with narcolepsy, but it doesn't work for all of them. And so I believe that will probably be translated similarly to IH. Now Xywav, estimates are around 9%. That's a CNS depressant and you take it the night before. It has a completely different mechanism of action. Stimulant use and utilization is necessary to actually treat these symptoms and treat them well. So in hand right now, we have a product that's differentiated on a drug-drug interaction scale. It's a C-IV stimulant versus the other products as well as it's going to address the primary issues, which are sleep inertia, waking and brain fog. We already know that stimulants like methylphenidate do very well with attention and brain fog is fundamentally, at its core, an attentive sort of disorder where if you can provide that attentive boost through the dopamine norepinephrine pathway, you're going to help eliminate some of that brain fog.

Given what you know now as well, how much would price competition be sort of what you're thinking? Is that a pretty large part of it? Or is it not really yet something you're thinking about as a main competitive edge?

Well, I think it's an important question. At an early stage in development, if you're not asking where do we kind of position ourselves, then I think you're just hoping that they'll come out in the end. Xywavs and Wakix are very expensive, right? They're at the top end of all these different products. Now Provigil, Nuvigil, those are a little bit more expensive, but certainly not in the range that Xywav and Wakix. So we see ourselves somewhere in there between those 2, where you have this enough clinical differentiation. Now because of the dissatisfaction with the current off-label treatments for the most part, methylphenidate, Provigil, Nuvigil being predominant, what those off-label treatments are, we expect that most of these folks will have already stepped through or failed the current generics. So where we said is, well, before you're going to get the expensive Xywav or Wakix, let's try and keep you to 1077.

Our next question comes from Oren G. Livnat with H.C. Wainwright & Company.

Can you hear me?

We can.

Great, great. So a lot going on in this call. So if I may, before we get into KP1077, you talked a bunch about exploring other candidates, potentially in-licensing, maybe internal stuff we don't know about. And looking at Phase 2, you also talked about sort of a derisked approach to a lot of this strategic review you took. So I'm just curious what kind of investment are you considering making in an external candidate, if it's already Phase II, presumably it's not going to come. There's no free lunches, right? It's hard to get the proof of concept. So just sort of size of magnitude of what you're willing to take on in light of your balance sheet would be helpful. And then I have some KP1077 questions.

Yes. I think that's a good question. I mean, we don't have a specific size of your balance sheet sort of approach. I think you have to weigh like as well what you're going to spend in development. Surprisingly, there's a number of good assets that I think have been overlooked. And given our expertise in drug development and regulatory, we can dive into those and know "Well, okay, your data didn't come out perfectly. And look, the agency could want to see this. And well, if we design the study differently," as an example, right. But for the most part, we don't have a predetermined set of parameters. This could be very early stage. It could also be Phase 1 with kind of knowing what the MOA is and maybe with a different indication. So there's not a specific that it has to be these. But ultimately, if we do bring in something else, we'll have to assess where we are with our balance sheet and what we need to do in the future and it better have some good value and upside for shareholders at that point.

And I know you're not giving guidance per se today, but just since you meant -- I guess I mentioned and then you mentioned the balance sheet. You talked about this very long runway into 2025 and beyond, which has obviously put you in a much better place than a lot of other smaller companies these days and in the market conditions. So congrats on that. But I assume that runway reflects your internal projections of Corium, AZSTARYS economics coming your way. So it doesn't necessarily give us a good sense of how much money you're planning on spending in the foreseeable future. Can you give us any sort of sense on what kind of investment this KP1077 program is on the R&D side, I guess, between now and end of Phase II or maybe even looking further beyond, how expensive those kind of programs might be?

Duane, do you want to take that? I'm happy to do so.

I'll take a first crack, and thanks, Oren. The -- in terms of the development spend required for 1077 for the IH indication, we think that program is going to run pretty efficiently. I'm not going to give you an exact guidance today, but I think certainly, we can fund it very easily with our cash balance as it is today. And Oren, since you followed us for a bit, you have a sense of how much it cost us to develop 415 into AZSTARYS. And so we think that the development program is going to be similar, maybe slightly less than 415, but that's a rough range. As we looked into -- at other indications like narcolepsy Type 1 and Type 2, think of it as sort of not a whole new development program, but rather add-ons to expand the label. So 1 or 2 or whatever is required, additional studies or trials. So if you take the base spend of, I don't know, in the range of $40 million to $50 million, and then you add another $20 million to $30 million, you can see how we can be very capital efficient just to give you sort of a general guideline that's modeled based on what we've done in the past.

Okay. And then just to get on to the product profile potentially for KP1077, it seems pretty intuitive, obviously, the stimulant effect. But I guess just to help us better understand the differentiation. You mentioned -- you showed these really cool curves with the flexible dosing. So the first thing that -- a question that seems obvious to ask is how might a stimulant, I guess, impact nighttime sleep in that scenario where you're taking it at night? And is that going to interfere with quality of sleep through the night or would a second dose make it harder to fall asleep at night given those curves that you showed us? And you mentioned brain fog a couple of times, which I don't think that was a regulatory end point in this space with Xywav being the 1 product approved. Should we assume you're going for a traditional EDS, excessive daytime sleepiness endpoint? And then Phase II, is that something you're doing? Is that what you're going to be aiming for? And is that head-to-head versus placebo? And I guess, what kind of dosing are you looking at in Phase II?

Okay, lot of questions.

A lot in there, I apologize.

I'll try to break it all up. I did take notes along the way. So as far as going at the curve, I mean, this was a primary question that we all had here at KemPharm, was these folks, if you have any level at night, is that going to cause any insomnia. And overwhelmingly, the physicians KOL said, no, they already have patients that take these things before bed and fall right to sleep. They have such a compelling desire to sleep that this is not going to be an issue. And of course, as you noticed, in both cases, the lowest trough levels occur for the most part at night, right, midnight to -- really 10 p.m. to roughly 4 a.m. So for the most part of the night, you're going to have the lowest level of stimulant on board. As far as brain fog goes, there is a validated endpoint for brain fog. Now that could be a key secondary endpoint. Our Phase II study will be more of a traditional dose, figure out if these -- what dose strengths work, which one of these dosing regimens or both would best in patients. Our primary endpoint will, of course, be safety and tolerability. But what we're really looking at is the afterwards sleepiness scale as our endpoint, right? That's validated. Our indication would not be for EDS. We're looking at just a general IH because IH covers more than just excessive daytime sleepiness for these patients, and it includes other symptoms as well. So if you can improve the ESF scale, we believe that, that will be really meaningful for patients. But looking more at brain fog as maybe a key secondary or as another secondary that could be either in the label in the first pass or as an add-on at a later point.

And is that open label? Or are we going to actually have placebo-controlled efficacy in this Phase II because you're saying it's primarily a safety and tolerability study, which, I guess, we normally think of as an earlier stage?

Yes, it's kind of a hybrid, right, between like a Phase IIa and Phase IIb. It will be against placebo, but there will be an open-label titration phase. So we'll have interim data, and we may be able to announce before the top line data comes out just to show a look, what we're seeing as far as trends as far as doses and what the differences were from baseline, but it wouldn't be from placebo. Eventually the data will be represented as -- versus placebo.

I'm 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.

I don't have many remarks today. I really appreciate everyone joining and attending today's call. Certainly, the continued interest in KemPharm really helps push us forward. I'd love to give more updates, would love to continue on the various discussions, and we will do so as we get new data and new information to pass along. Appreciate your time again. Thank you, everyone.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.