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

Good day. Thank you for standing by. Welcome to the KemPharm's Strategic Acquisition Conference Call. [Operator Instructions] I would now like to hand the conference over to your speaker today, Jason Rando with Tiberend Strategic Advisors. Please go ahead.

Good morning, and thank you for joining our call today to discuss KemPharm's definitive agreement with Orphazyme to acquire arimoclomol. 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 from KemPharm will be Richard Pascoe, Executive Chairman; Travis Mickle, President and CEO; and LaDuane Clifton, CFO. Following the remarks, there will be a question-and-answer session. With that, it's my pleasure to introduce Rich.

Thank you, Jason, and welcome to everyone joining our call this morning. I'm very excited to be speaking to you today about what we believe is a substantial value building opportunity for KemPharm and its shareholders. As Travis has highlighted on prior calls, including last week's discussion of our first quarter 2022 results, KemPharm's growth strategy is focused on building a pipeline of novel treatments for rare CNS and neurodegenerative diseases that address indications to underserved by currently available medications. Our aim is to build this pipeline by advancing internally developed products such as KP1077 for idiopathic hypersomnia and through the acquisition or in-licensing of products originated by other companies or institutions. Ultimately, our goal is to advance these products to an NDA and potential FDA approval, after which KemPharm would seek to build a small but highly specialized marketing and commercialization team. We believe our regulatory experiences with AZSTARYS and APADAZ position us well for success on this front. With this vision in mind, KemPharm is excited to announce our definitive agreement with Orphazyme to acquire essentially all their assets to include their lead product candidate, arimoclomol, and orally delivered first-in-class heat shock protein amplifier being developed as a treatment for Niemann Pick disease Type C or NPC for short. NPC is a rare progressive neurodegenerative disease for which no approved treatment exists in the U.S. The disease is so severe and underserved that arimoclomol is currently being made available to NPC patients in the United States, France and Germany under Orphazyme's Early Access Program, or EAP. The addition of arimoclomol significantly expands our development pipeline targeting rare CNS diseases bringing to KemPharm an NDA stage revenue-generating product upon which we intend to build commercial capabilities that allow us to create and retain value for the benefit of shareholders versus solely relying upon partnerships. The financial structure of the acquisition is also very attractive in that current revenue is being generated by arimoclomol from the existing Early Access Program in France, affords us the opportunity to acquire the asset in a capital-efficient manner that has the potential to create positive cash flow while incurring no shareholder dilution. I think this bears repeating. Today, KemPharm has acquired a novel late-stage product, arimoclomol, that addresses a rare condition impacting the central nervous system for which no treatment exists in the U.S. We were able to do this via a non-dilutive all-cash transaction that has the potential to generate immediate revenue, which could ultimately render the deal cost neutral to KemPharm. Simply said, this is a tremendous opportunity for KemPharm and 1 that is a result of months of diligent work by the entire KemPharm team, most notably Travis Mickle and LaDuane Clifton, who are here with me today. Expanding our pipeline via the in-licensing or acquisition of an asset was stated as an objective for 2022 and through their leadership, we've now delivered. With that, I'd like to turn the call over to LaDuane, who will provide more details on the transaction. LaDuane, go ahead.

Thanks, Rich, and thank you for joining this morning. I'll just provide some additional details related to the definitive agreement. As Rich has already summarized, we will be purchasing substantially all the assets and operations of Orphazyme, including the product, arimoclomol with a cash payment of $12.8 million. We're going to finance that cash payment through a revolving line of credit, which is secured by KemPharm's balance sheet so that you asked me -- if you ask me what the balance is today, I'd tell you it was $119 million at the end of the March. And if you ask me what it is tomorrow, I'll say it's $119 million as of the end of -- as after this transaction. I think we've tried to do this in a way that's very much capital efficient and maintains KemPharm's flexibility as we certainly have other development priorities in addition to this new product opportunity. There is an assumed reserve liability that we're also going to be picking up here of $5.2 million but this is tied expressly to the revenue that's being generated under the French Early Access Program, and it's something that will be due in the future. It's important to note that this is, in fact, an estimate and so this is a conservative estimate based on what the estimates are today of what the commercial price will be in the future. But as we get closer to that, there is a chance that, that could be a lower liability. The EAP in France is very important to this project because as Rich noted, it allows us to begin recouping costs immediately and frankly, we expect this would generate up to $12 million in 2022, and that's based on the current enrollment in the program in France. That could change, it could go up, it could go down, but we believe that this is an important feature of this deal as it allows us to cover those costs going into and through the resubmission and approval, we hope. In addition to that, there is Early Access Programs in other countries, such as U.S. and Germany, although those do not bear revenue in the same way as the French program. We will also be retaining a majority of the current employees of Orphazyme, a lot of the scientists and product development specialists who have been a key part of bringing arimoclomol to the point where it is now. And we have actually already created a new subsidiary in Denmark, where these assets will be held initially. Ultimately, this deal is expected to close on or before June 1 and is subject to final approval by the creditors in the court. But I will tell you that court has been a key part of all the negotiations, and we don't expect anything to delay the close. So with that, Travis, I'll turn it to you.

Thanks, LaDuane and thanks, Rich. So I'm going to dig into a little bit more of the details of arimoclomol and NPC and how we believe that there's a great opportunity in front of us. When we think about this disease, this is debilitating, devastating disease really characterized by lysosomal storage disorder. This disorder affects primarily organs of the brain, spleen and liver. Ultimately, the neurocognitive function is diversely affected greatly. And of course, most importantly, this is a fatal disease. Most cases that start young are actually, again, very progressive and aggressive and tend to lead to a very short life span. If it's later in life, so as people grow up tends to be a little bit less aggressive in those cases. But as you can see from this slide, the mean age of death in NPC patients is roughly about 13 years. We estimated about 1,800 patients in the U.S. and Europe and about 3,000 globally. And of course, there's no approved treatment that exists in the United States for NPC. In Europe, there is 1 available treatment that's miglustat and you may hear that again in this presentation. So when we looked closely at arimoclomol, and we looked at this opportunity, what we saw was [ pick in ] clinical data that was convincing and compelling a regulatory environment that certainly can be overcome and something that we are very interested to see if we could bring this across the goal line. This is a first-in-class oral treatment for -- intended for NPC. The capsule formulation, so you can open it up and actually allow the contents to be mixed with food, liquids, delivered through a gastro-feeding tube, which is an important option. All the evidence to date has shown that this product is actually improving lysosomal function as well as cellular function. It has been studied in 10 Phase I, Phase II -- 4 Phase II and 3 Phase II, Phase III trials in various rare diseases. So what we've seen is very good safety data up to 500 individuals in various diseases, up to 5 years of treatment with no significant safety findings. There was positive efficacy signal from the NPC trial that's NPC-002 as well as positive results from a Phase II trial in Gaucher's Disease, which is a related lysosomal storage disorder. The product is exciting because it's already received an Orphan Drug Designation for NPC in the U.S. and Europe, Fast-Track Designation, Breakthrough Therapy. And then again, another important component when we think about the economic possibilities for a product like this is the Rare Pediatric Disease Designation. So if approved, this product would be eligible to receive a priority review voucher attached to that designation. Also eligible for our NPC status as well as orphan drug exclusivity and the patents are long lived, could extend out to 2040. So when we look at the path ahead of us for an NDA resubmission, this particular process, we think, is fairly straightforward. The CRL that was received from the FDA by [ work ] design at the time was last year, June 17. The FDA identified 3 key issues, primarily it's around the endpoint and how that's used in the single efficacy trial. So they wanted to see additional evidence as well as substantiation of the validity of that end point. Second was how missing data was handled for the statistical analysis. And then third was additional support for confirmatory evidence. Many of you may be aware that in particular cases where you have just a single efficacy trial, that there is need for additional confirmatory evidence of efficacy and/or mechanism of action. Most importantly, when we reviewed the CRL and reviewed it with our key experts and consultants, the FDA did not request any additional efficacy data. Usually, the first thing they do is right up front and say you need to conduct another trial, and they did not do that. When we reviewed the Type A meeting that was held in October, we saw this continued effort to work with the company and work with the sponsor to be able to move this product ahead to a potential approval. The FDA agreed with the Orphazyme's approach on how we analyze the primary endpoint, removing the cognition domain. They agreed to a rescoring around the swallowing domain as well as further validation of that endpoint. FDA agreed to discuss in the future how best to handle missing data. There was no consensus at the time, but we believe there is a very reasonable path forward. And then additional confirmatory evidence was already available. And so the company actually presented this, and we believe this is very compelling and an expansion upon what was submitted in the NDA. So I've discussed some of this already as we've broken this down. FDA has confirmed that we can remove the 4 domain -- remove the cognition from the 5-domain primary endpoint to form a new 4-domain endpoint. You'll see how that affects the statistical analysis and treatment effect in a second. They agreed to the qualitative study and reviewed it when it comes to the swallowing domain, the scoring used in the trial as well as the clinical relevance. What we still need to find out and what we still need to work with is how the FDA would like to see missing data handle. And ultimately, we believe there's a great opportunity here. What I think is very important for everyone to be aware of and understand is that this study did not fail. This was not a failed trial. By the prespecified analysis that was included in the SAP and the protocol with the original endpoint that met statistical significance and the study was successful. The agency's methodology that they would like to see in this particular instance was not prespecified. Other statistical methods may be more appropriate, including use of the original prespecified analysis. And this is something that we have seen many times where missing data has become an issue for a lot of sponsors and how that is handled statistically, given the statistical impact there for the particular product. Now when we look at what was actually in the original NDA, that is the -- sorry, Slide 11, prespecified 5 domain NPCCSS. The treatment effect was a change from baseline of minus 1.4. This indicates an improvement versus the baseline effect, so where somebody started. Again, this is a scale that runs from 0 to 25 when we talk about the 5 domain. We talk about the 4 domain that's of scale from 0 to 20. 0 being the best and 20 being the worst. Each domain is scored from 0 to 5, depending on the particular symptoms involved. So we look at the prespecified and how it changed for removing the cognition, you can see an improvement in the treatment effect and certainly an improvement in the statistical significance. When the FDA used their post-hoc analysis, again, just an illustrative example, again, you can see it did not reach statistical significance for the 5 domain and was barely outside of what is usually assumed to be statistically significant at 0.06. When the meeting was conducted -- Type A meeting, it suggested that you could use the 4 domain as well as the rescore of the swallowing domain as per what the FDA had requested we see, again, a p-value that is highly statistically significant that also can be used with the FDA's post-hoc analysis and reach statistical significance. When miglustat subgroup was explored, you can see a tremendous effect. So 1 thing I would like to point out is that in this particular study, the standard of care was applied, which is miglustat, who was applied to both placebo and the active group. So fundamentally, these patients were, for the most part, on both about 80% of all patients received miglustat during this particular clinical study. The other piece of the puzzle here, the other piece to us getting this product resubmitted and ultimately approved. It was bolstering the confirmatory evidence in order to address the key issues. Since the Type A meeting, since the CRL, there's been a ton of additional data that has been generated, all of it pointing in the direction of confirming the clinical effect that's seen. This includes data around biomarkers, results from the open label extension arms, which have gone out to 4 years as well as data from expanded access programs. As Rich alluded to, I'll give some [ excellent ] numbers, but [ many ] patients and additional patients have been added to these programs. New results also were included for in vitro studies and in vivo models of NPC. We believe the totality of the current evidence as well as whatever we may do before resubmission is enough to address the FDA's issues and we'll be addressing that with them before that submission. So the path forward, we believe, is very straightforward. We have the right experience, the right team. We've gone through this before with APADAZ, which actually went through an FDRR process before finally getting approved. We went through a statistical issue with AZSTARYZ, and we work with our partner to get their product at [ regulatory ] approved after they received 2 CRLs. Certainly, there is an opportunity here above that. We believe that there is a chance that we may want to utilize the FDRR process. We do know that an ad com is highly recommended if it will resubmit, which we believe will be a good thing in this particular instance to educate the FDA further on the benefits of the product. With all that being said, we are focused right now on resubmitting the NDA and believe the first quarter 2023 is a reasonable target objective for that resubmission. Turning a little bit to the commercial opportunity. What's compelling here, we believe, is that with this particular product, right up-front, if you receive approval, you have this Rare Pediatric Disease Priority Review Voucher. Last 1 was sold for $110 million is within the typical range of roughly $100 million per voucher. We also think there could be an opportunity if this program is going to end at some point where these vouchers are more scarce. And so that may be something that impacts and makes these vouchers more expensive in the future. Arimoclomol is already generating revenue as LaDuane, and Rich have mentioned. That program is actually 1 that reimburses for the treatment and it's 1 that's been in place now for over a year. Typically, as we're moving through a marketing application and potential trench and/or European approval, that program will remain in place. And the French agency has been very willing to work previously with Orphazyme, and we hope and believe that it will do so again now with KemPharm. The global EAP program actually represents what will be the first patients on treatment post-approval. So right now, there's 151 global participants. We've heard from a number of consultants, that's amazing. Many times, these are led by positive results that KOLs are seeing with their current patients in their centers or in their care. As of March 31, there was 67 patients in the United States, 41 in Germany, 34 in France and 9 patients in other countries, including Denmark, Switzerland and the U.K. When we look at the opportunity, as Rich already mentioned, this is a great chance for us to take a product forward, get the product approved and retain all the benefits and the value. Typically, an ultra-rare disease like NPC can be commercialized and marketed with a very small team, less than 20 individuals. And thinking about the global market opportunity, there from European perspective, we'll focus on the European regulatory after we get the U.S. approach well off in full steam towards that Q1 2023 potential resubmission. We'll also be looking at other partnerships outside of Europe and United States because there are opportunities outside of those particular jurisdictions. So when we look at our pipeline today, we can see that we've actually demonstrably moved this company forward now with an NDA resubmission product idiopathic hypersomnia. We all know that KP1077 is moving forward as well as narcolepsy and internal candidates. And we believe that this is just the start. These are the candidates that we're going to focus on for now, but there are other opportunities out there and there's other opportunities within. And this is just a great chance for us to move the value proposition and really advance the company and the programs that we have in very short order. So we're tremendously excited. I know the team that's been involved with this internally is the right team. They are energized beyond anything I've seen in the 15 years of being a part of KemPharm and they are ready to make this product succeed. Take it forward, get it approved and then get it commercialized as well. So very exciting day. That's all I have for now. Happy to take any questions.

[Operator Instructions] Our first question will come from the line of Jonathan Aschoff from ROTH Capital.

I was curious, was miglustat you stratified between the arms in that trial?

I don't believe it was. It was used as a standard of care as needed.

Okay. But I mean 39 out of how many used it.

39 out of 50.

Okay. So basically, how are you going to modify the swallowing component?

The current proposal is to combine some of the different swallowing domain calculation. So there's 1 that's focused on coffee and with a liquid and another 1 coffee with a solid. So that's a textural issue. You can fundamentally have difficulty swallowing both of those and may not be recognizable. So the agency rightfully pointed out that coffee and while eating was probably more appropriate. So using, say, some other scales speaking to KOLs, doing a qualitative assessment, I believe that's the approach to take forward. And it's really about making sure that those particular scores are well validated and have clinical significance and can be measured.

Okay. So let's see here. What amount of revenue in total is being generated under the EAP in Germany and in the U.S. because you spoke about $12 million in France?

Yes. So this is LaDuane. The Early Access Programs in the other countries outside of France do not generate revenue. The manufacturer provides the product free of charge in those cases. So the French program is unique in allowing reimbursement pre-approval.

Okay. And the last 2 questions. Will you break out the total [ NPs ], the total revenue -- your pre-commercial revenue every quarter? And the second part of that is how much of the $5.2 million rebate owed to the French regulators, how much revenue is that rebate based on?

Well, it's -- that's a great question, Jonathan. We do expect to provide visibility as we go forward each quarter. So that's an easy answer. With regard to the estimate of the revenue liability, it's been based on a 50% rebate at the moment. And so you could expect that was approaching the $12 million approximately in revenue. So those estimates are tied together. But I have to reiterate that, that estimate of a 50% rebate is conservative and is intended to sort of -- it won't be finalized until the commercial price is set after approval. And so there's a lot of estimation and adjustment that might be coming out of that. So that was very much a conservative estimate that Orphazyme had initially made with the French government. And at this point, we've maintained.

Okay. Well, it sounds like you're about to find a home, I think, for this drug, which has been around the block. I mean, I've covered a company that had this drug without 12, 14 years ago. So it definitely seems like it's about to find a home, so congrats on the progress.

Thank you.

Thank you. There are no further questions in the queue. I'd like to turn the call back over to Travis Mickle for any closing remarks.

Again, I'd like to thank everybody for your time today. I'd certainly like to thank the team, the Board, the entire company, the Orphazyme organization, everyone has worked on this to give us this opportunity. It's very exciting. We plan to move this forward with all the passion that we have with every program that we've ever had here at KemPharm. So again, thank you, and I appreciate your time.

This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.