Zevra Therapeutics - Q3 2023

Transcript

Neil McFarlane (President and CEO)

Good morning, everyone. Thank you for joining the Zevra Therapeutics third quarter 2023 corporate updates and financial results call. Today's call is being recorded and will be made available on the company's website following the conclusion of the call. With that, I will now turn the call over to Nichol Ochsner, Vice President of Investor Relations and Corporate Communications for Zevra Therapeutics. Please go ahead.

Nichol Ochsner (VP, Investor Relations and Corporate Communications)

Good morning, and thank you for joining us today to review Zevra Therapeutics' progress in the third quarter of 2023, outlining our clinical advances, operational achievements, and financial results. Before we get started, let me take a moment to provide some important information. First, I encourage you to access the press release, which was published this morning and is available in the investor section of the Zevra website. While we will not be using slides on today's call, an updated corporate presentation will be made available on our website later today. As we move forward, it's important to highlight that the company's discussions will include forward-looking statements. Forward-looking statements are not promises or guarantees and are inherently subject to risks, uncertainties, and other significant factors that may lead to actual results differing materially from the projections made.

For a comprehensive understanding of these factors, please refer to the Risk Factors section in our most recent quarterly report on Form 10-Q and our annual report on Form 10-K. I am pleased to welcome Zevra's management team members participating in today's call. I'm joined by Neil McFarlane, President and Chief Executive Officer; LaDuane Clifton, our Chief Financial Officer; Joshua Schafer, our Chief Commercial Officer and EVP of Business Development; and Christal Mickle, our Chief Development Officer. With that, I'll turn the call over to Neil.

Neil McFarlane (President and CEO)

Thank you, Nichol, and thank you all for making the time to join us today. It's truly an honor for me to have the opportunity to lead Zevra at this critical stage of our growth and to build on the company's solid foundation as we work towards achieving multiple near-term clinical and regulatory milestones, along with accelerating our rare disease commercial capabilities to bring therapies to patients. What I'd like to do this morning is to provide a brief update on my transition and a few corporate updates. Then I'll speak briefly on our key development programs and the acquisition of Acer. After that, I'll turn it over to LaDuane to provide the financial highlights and open the call for questions. Since joining last month, I've been meeting with and actively listening to our stakeholders.

Consistent with what I understood before joining the company, Zevra's transformation from an organization built on prodrug platform technology into one intensely focused on delivering promising therapeutic candidates to people living with rare diseases is well on its way. The mission of the company, with a deep focus on people living with rare diseases, is very much aligned with my own beliefs, and I've been impressed with the unwavering commitment of the team to build on the past to accelerate the future. I would like to thank Christal for her work as Interim President and CEO. She kept our programs moving forward while leading the company during the transition. Christal has now returned to her role as Chief Development Officer and will continue to advance our clinical programs. Joseph Saluri also recently retired from the board.

We thank him for his dedication and service to the company's growth and success. I'd also like to take the opportunity to thank our shareholders that have remained committed to Zevra on its journey to becoming a leading rare disease company. I'm now pleased to report that there is stability within the board and management team, along with the clarity to execute our plan. Let me now start with our clinical development updates. Arimoclomol is poised to be the first drug approved in the U.S. for the treatment of Niemann-Pick disease type C, or NPC, which is a rare, genetic, progressive, and potentially fatal neurologic disease, which currently has no approved therapy in the U.S., creating an urgent need for people who are awaiting a treatment option. To date, arimoclomol has been studied in more than 10 different clinical trials, evaluating its safety and efficacy across over 500 subjects.

Since we acquired the asset in 2022, we've had productive interactions with the FDA and have been steadily working to address their feedback raised in the Complete Response Letter. We are confident that each of the deficiencies raised are being addressed in the resubmission. Specifically, additional evidence is being provided to support the use of the NPC Clinical Severity Scale, as well as the inclusion of an FDA-preferred primary analysis. New data will also be included in the resubmission from multiple non-clinical studies, natural history comparisons, and real-world data generated from the ongoing early access programs in the U.S. and the E.U. In addition, data from the four-year open-label extension of the Phase 2/3 clinical trial will be included in the submission, further demonstrating that arimoclomol may reduce the long-term progression of NPC.

We remain on track for the resubmission of the arimoclomol NDA by the end of the year and is expected to be classified as a Class 2 submission, which will be subject to a six-month review period by the FDA, placing the potential PDUFA date in mid-2024. We're also actively laying the groundwork for the commercial launch of arimoclomol in the U.S. to make this new therapy accessible to people as soon as possible. We are developing the NPC market by raising awareness of the heterogeneous presentation, which includes visceral, neurological, and psychiatric symptoms, making it difficult to identify and diagnose. As we progress towards the potential approval and launch, we will continue to focus on advancing genetic testing programs, creating early diagnosis tools, and supporting the evolution of treatment guidelines to support families and reduce the time to treatment.

As a trusted and committed partner, we've worked alongside people living with NPC to elevate their voice. Their input has been instrumental in building awareness of the need for approved treatments for this debilitating condition. We continue to work together to develop patient services that will provide access and a positive treatment experience. Now, I'd like to turn your attention to KP1077, our clinical candidate being developed as a treatment for idiopathic hypersomnia, or IH. It is estimated that approximately 37,000 people in the United States are currently diagnosed with IH. With one FDA-approved treatment, there remains an unmet need for treatments with different mechanisms of action to address key unmet needs of excessive daytime sleepiness, sleep inertia, and cognitive dysfunction. Our development program for rare sleep disorders continues to make meaningful progress.

Last month, we reported interim data on the open-label dose titration portion of the Phase II clinical trial. These results demonstrated that KP1077 is well tolerated at all dose levels and regimens. We are also encouraged by the interim results and believe the unique PK profile may be well suited to address the unmet need. As the program progresses, we are continuing enrollment at over 30 sites across the U.S. and remain on track to report top-line data in the first half of 2024. These results will inform the design of the Phase III clinical trial in IH, which is expected to be initiated by the end of 2024.

In addition to the progress being made on the Phase II trial, I'm pleased to share that our Phase I study under the narcolepsy IND is complete, and the data will be analyzed alongside the IH data to support the clinical development of both narcolepsy and IH programs. Moving to our proposed acquisition of Acer. Upon closing, we will acquire complementary rare disease assets that accelerate our transition into a commercial company. This is a natural fit with Zevra's mission, mission of to bring life-changing therapies to people with rare diseases. OLPRUVA, indicated for the treatment of UCDs, which are a group of rare genetic disorders that can cause harmful ammonia to build up in the blood, potentially resulting in neurocognitive impairment, brain damage, and in some cases, even coma.

UCDs can be both symptomatic or asymptomatic, making it difficult to identify people who have not yet received a confirmatory diagnosis. There are approximately 2,000 people in the United States, of which roughly half are diagnosed and treated. The UCD market in the US is estimated at approximately $400 million annually. This is an attractive opportunity for Zevra, not only to build our commercial capabilities, but it's also a good strategic fit with arimoclomol, as there's a high degree of overlap between UCDs and NPC. Both are genetic disorders diagnosed by clinical geneticists and metabolic specialists, and while other specialists are involved with the ongoing treatment, such as pediatric neurologists in the case of NPC, the majority of these experts work within a concentrated number of centers of excellence.

This close proximity will allow us to reach the majority of prescribers and to realize synergies and scale with an efficient customer-facing team. Acer's shareholder meeting is scheduled for tomorrow, November eighth, during which time a vote to approve the deal will take place. This vote will mark a decisive moment for Acer and gives Zevra the opportunity to build on the highly complementary programs that impact the lives of people with serious rare diseases. Now I'll hand the call over to LaDuane, who will provide an update on our financial results and outlook.

LaDuane Clifton (CFO, Secretary and Treasurer)

Thank you, and good morning, everyone. As you can see from the update that Neil has provided, Q3 2023 has been a time of incredible progress in our quest to make therapies available to people with rare diseases. Our financial results for the quarter reflect our steady progress and continued investments in advancing our development programs, and building out our commercial capabilities with a focus on patient services and advocacy. For Q3 2023, we reported revenue of $2.9 million compared to the same amount for the same quarter in prior year. Q3 2023 revenue was comprised of $2 million in reimbursements from the French Early Access Program for arimoclomol and royalties from the AZSTARYS license of $900,000. Compared to Q3 of last year, AZSTARYS royalties have grown by $600,000.

R&D expenses during the period were $12.3 million, which was an increase compared to $5.4 million for the same quarter in prior year. The increase is due primarily to the ongoing phase II clinical trial for KP1077, as well as ongoing work to prepare the arimoclomol NDA for resubmission later this year. G&A expenses were $5.8 million for Q3 2023, compared to $4 million in Q3 of last year. This was consistent with our expectations and is driven by our business development activities and our ongoing investments into our commercial capabilities. For Q3 2023, net loss was $14 million, or $0.40 per basic and diluted share, compared to a net loss of $6.6 million, or $0.19 per basic and diluted share for the same period in 2022.

Total cash, cash equivalents, and securities were $83.4 million as of September 30, 2023, which was a decrease of $4 million compared to the prior quarter. The $5 million milestone payment earned under the AZSTARYS license agreement during Q2 2023 was received during Q3 and offset the use of cash during the quarter of $9 million, which was driven by the ongoing KP1077 development program, investments in our commercial capabilities, and business development activities. As of 30 September, 2023, total outstanding shares was 36.2 million, and fully diluted shares outstanding was 51.6 million. Our balance sheet remains strong and is expected to support our forecasted operating cash runway into 2026.

It is important to note that our forecast does not include commercial revenue from arimoclomol, which would follow potential FDA approval, or the sale of the priority review voucher, or any revenue from sales of OLPRUVA. As you can see, there are many reasons for our optimism. We are focused on executing against our plan with the goal of creating long-term value for our shareholders. We will now return the call to the operator for questions.

Operator (participant)

At this time, if you wish to ask a question, please press star one on your telephone keypad. You may remove yourself from the queue by pressing star two. Once again, that's star one to ask a question. Our first question will come from Louise Chen with Cantor Fitzgerald. Please go ahead.

Louise Chen (Managing Director, Senior Research Analyst)

Hi. Thanks for taking my questions, and congratulations on all the progress this quarter. I wanted to ask you on OLPRUVA, and basically how you plan to commercialize this product and how you think about peak sales potential. And then for the arimoclomol NDA, was the additional or, you know, I guess, larger amount of data that you said would take some time to review, something that was requested by the FDA, or was it something that you wanted to provide? Thank you.

Neil McFarlane (President and CEO)

Thank you, Louise. I'll ask Josh to take the OLPRUVA commercialization questions, and then I'll ask him to pass it off to Christal to discuss the NDA resubmission.

Joshua Schafer (Chief Commercial Officer and EVP of Business Development)

Great. Thanks, Louise. With regards to the commercialization for OLPRUVA, we're excited for the deal to close, hopefully, any day now. Upon closure, we'll take over responsibility for commercializing this, and we see the opportunity to have a more fulsome launch for the drug, really targeting the first quarter to put full resources behind the commercialization. So we anticipate and are putting in place a sales team, medical liaisons. We have a particular focus on patient advocacy and working with the patient community to bring OLPRUVA to those living with UCD, as well as the prescribing community. And we're building out a full suite of patient services as well to ensure that patients have access to OLPRUVA.

We anticipate that all of that will be in place by the end of the year to really optimize the commercial opportunity for OLPRUVA. With regards to revenue projections, we really haven't yet, you know, disclosed that, and we'd like to get a couple of months of commercial activity behind us before we're ready to do that. But the market size, as you probably know, is about $400 million, with several products in that market now. And we see that we would have a differentiated product that would have the opportunity to take considerable share within that market. I'll pass it to Christal.

Christal M. Mickle (Chief Development Officer)

So hi, Louise. Thanks for that question regarding the FDA and whether or not they requested specific studies or they were just studies that we conducted ourselves. Throughout this process, we have had several interactions with the FDA. The CRL had, you know, three concerns that they had, and we feel like we have sufficiently addressed those concerns. Again, all of that comes with a collaborative working relationship with the FDA. So as we decided on studies to conduct and got results for those studies, then we would meet with the FDA to discuss whether or not those were adequate.

Again, most of those, it's all going to be review issues for the FDA, but we are confident that we have addressed what the FDA has access to.

Louise Chen (Managing Director, Senior Research Analyst)

Thank you.

Operator (participant)

Thank you. Once again, if you would like to ask a question, please press star one. Our next question comes from Jonathan Aschoff with Roth MKM. Please go ahead.

Jonathan Aschoff (Managing Director and Senior Research Analyst)

Hi, guys. Good morning. Thank you. What were your exact AZSTARYS royalties, and do you still expect $10 million in milestones and, you know, to be earned in this quarter, or actually $15 million?

Neil McFarlane (President and CEO)

Duane?

LaDuane Clifton (CFO, Secretary and Treasurer)

Yeah. Good morning, Jonathan. Thank you for the question. The exact was, I believe, it was 880,000, so we rounded up to 900,000. And with regard to the $10 million milestone, we are definitely on track to-

...earn that milestone during Q4, and then that, of course, that cash would be received in Q1.

Jonathan Aschoff (Managing Director and Senior Research Analyst)

And so that was one milestone, not a five and a 10 this quarter, just, just the 10?

LaDuane Clifton (CFO, Secretary and Treasurer)

The $5 million was earned in Q2, and then the cash was received in Q3. And so then looking ahead, the $10 million would be earned in Q4, we believe, and then received in Q1.

Jonathan Aschoff (Managing Director and Senior Research Analyst)

Okay. How's about this, R&D spike? What does that look like going forward?

LaDuane Clifton (CFO, Secretary and Treasurer)

The increase in R&D was certainly because we're in the right in the middle of this Phase II trial, and so we're continuing to work through that. You can expect a similar trend going into Q4. Then that top-line data for the KP1077 Phase II is expected in the first half of 2024. As the clinical phase kind of winds down toward the beginning of that first half, you know, for Q1, then you'll see it moderate a bit. As you look into the end of 2024, that we intend to initiate the Phase III for KP1077, and so then maybe toward the end of next year, you begin to see an additional ramp-up in R&D spend as that begins the clinical phase there for the Phase III.

Jonathan Aschoff (Managing Director and Senior Research Analyst)

Okay. In the US, how would you quantify that low-hanging arimoclomol fruit? You know, the identified patients who are eager to take something for NPC.

Joshua Schafer (Chief Commercial Officer and EVP of Business Development)

Hi, Jonathan. This is Josh. I'd like to remind you that we have this ongoing expanded access program here in the US, which has roughly 70 patients who are already receiving arimoclomol. And it's our intention that, upon approval, our focus is really going to be to convert those patients who are receiving free clinical drug now to paid patients on arimoclomol. So we see that as kind of a bolus of patients who will become, you know, commercial, while at the same time, being able to try and reach those other patients with NPC who might not yet be on arimoclomol. I'd also remind you, you know, as we've mentioned in our prepared remarks, and as I'm sure you know, arimoclomol has a high degree of awareness within the prescribing community right now.

So we've been working with the patient advocacy community and with the thought leaders to ensure that when arimoclomol is commercially available and approved, that we'll be able to bring it to those patients with NPC now. And there are roughly about 300-400 patients who are actively treated today.

Jonathan Aschoff (Managing Director and Senior Research Analyst)

Okay, that's helpful. So how many additional sales and marketing heads do you think you'll bring on for both OLPRUVA and arimoclomol, assuming approval in the middle of this next year? You know, by the end of let's 2024.

Joshua Schafer (Chief Commercial Officer and EVP of Business Development)

Yeah. I don't think we're yet prepared to give you a precise number, but we are planning to use the same team to commercialize both OLPRUVA and arimoclomol. And given the fact that both markets are very concentrated and largely these patients are treated within the same centers of excellence, of which there are roughly 40 or 50 across the country, we believe that we'll be able to reach the majority of physicians who diagnose and treat these patients with a very small team focused on those centers of excellence. And again, that team will be comprised of a sales team, marketing, account managers, talking with payers and ensuring that there's sufficient access for these patients, as well as a medical team out there as well.

Jonathan Aschoff (Managing Director and Senior Research Analyst)

Yeah, because you had mentioned, not even 20 required for arimoclomol. Do you think, you know, 30 for everything, or, is it still something where it's that same number, not even 20?

Joshua Schafer (Chief Commercial Officer and EVP of Business Development)

Yeah, it's probably in that range, you know, in terms of the customer-facing team, but then we'll also have patient services and a robust, you know, hub that will provide support for those patients as they embark on their treatment journey. So I think within that range is probably, you know, a good direction.

Jonathan Aschoff (Managing Director and Senior Research Analyst)

Okay. And, lastly, you know, do you have any sense of timing for OLPRUVA label expansion? You know, how aggressively you might go into maple syrup or, or anything else, or are you more so looking for additional orphan acquisitions?

Neil McFarlane (President and CEO)

Jonathan, this is Neil. That's a great question. What I'm doing as part of my listening tour is really understanding what are the things that we need to focus on and have clear line to execute on today. That is our Acer program, that is the arimoclomol program, and that's KP1077. I think what I'm looking for the team right now to do is to evaluate the entire portfolio and find out how we're going to be able to make those decisions based on prior and prioritize those areas of development. So I think you got to stay tuned on that one. Give me another quarter, and let's have that conversation next time.

Jonathan Aschoff (Managing Director and Senior Research Analyst)

Okay. Thank you.

Operator (participant)

Thank you. Our next question will come from Sumant Kulkarni with Canaccord. Please go ahead.

Sumant Kulkarni (Managing Director)

Hi, thanks for taking my questions, and nice to see all the updates. You mentioned several interactions with the FDA, but could you specify how long ago was the last interaction?

LaDuane Clifton (CFO, Secretary and Treasurer)

Christal?

Christal M. Mickle (Chief Development Officer)

Yeah. Hi, Sumant. Thanks for the question. Our last interaction was the FDA meeting at the beginning of August.

Sumant Kulkarni (Managing Director)

Got it. And then, assuming the company has both OLPRUVA and arimoclomol to commercialize next year, do you think the organization will be at capacity with selling two important products for some time? Or do you think the infrastructure could support additional acquired rare disease products? And along those lines, how, how would you characterize the landscape of available rare disease products today, especially given how markets have treated small and midcap biotech?

Neil McFarlane (President and CEO)

Thank you, Sumant. You know, the opportunity for us to be able to accelerate our commercial platform and capabilities by bringing the talent together with Acer, and OLPRUVA, and then arimoclomol, really is a platform. This is, this is a step in the direction of us becoming a leading rare disease company. How we execute on that, I think will earn the right to be able to do this again, and again and again. So from, from a standpoint of will we be at capacity, I think, clearly executing on what we have to do, will allow us, to be able to make that decision at the time as to bringing additional assets under the umbrella. Josh, you want to take the next one?

Joshua Schafer (Chief Commercial Officer and EVP of Business Development)

Yeah, absolutely. And just to add on to what Neil said, we are building the commercial capability in a way that it can be scalable for that purpose. And you know, we're building it today with the intention to execute against our OLPRUVA plans, but scalable to then add arimoclomol and potentially other rare disease products if that comes. But that's the intent. And in terms of other rare disease products in the landscape, there are a number of very attractive other opportunities out there, whether they're in late stage clinical development or already commercialized and on the market. And so we are constantly scanning the horizon for other opportunities.

Our focus right now is really on building the commercial team and executing against the plans that we have in place.

Sumant Kulkarni (Managing Director)

Got it. Thanks.

Operator (participant)

Thank you. Our next question will come from Oren Livnat with H.C. Wainwright. Please go ahead.

Oren Livnat (Managing Director and Senior Equity Research Analyst)

Thanks for taking my questions. Yeah, I think all of them are kind of touched on already, but just to build out some more. Firstly, you know, I don't follow Acer already. Can you just help us understand what is the current state of OLPRUVA commercialization, so to speak, already, in terms of existing support, awareness? You know, obviously, you're going to dramatically resource that product, you know, early next year, but where is that at now?

Neil McFarlane (President and CEO)

Oren, I'll ask Josh to hit on that.

Joshua Schafer (Chief Commercial Officer and EVP of Business Development)

Yeah. Hey, Oren. So OLPRUVA was approved in late 2022, but didn't actually make it into the market and into the channels until July of this year, due to some of the financial challenges that the company was faced. And so, you know, consequently, there isn't a tremendous amount of awareness of OLPRUVA in the market today. And the team at Acer is a pretty small team. They've been, I think, really effective given the limited resources that they have. But they don't have a sales force out there talking with physicians. They have a very small account team talking with payers.

So we see this as a real opportunity to put appropriate resources behind it and to really drive the awareness of OLPRUVA and the benefits that it confers to our patients. And we think with that concerted effort and the combined efforts of our two companies coming together, we can really drive awareness and demand for OLPRUVA.

Oren Livnat (Managing Director and Senior Equity Research Analyst)

Okay. And I guess bigger picture or conceptually, as you sort of lay a commercial groundwork now well ahead of potential arimoclomol approval, which is, you know, a new development in the story versus a few months ago, how do you think about the potential return on investment and shareholder value creation with OLPRUVA alone, versus needing arimoclomol to layer on top of that infrastructure? I guess another way to put it, do you think—do you need arimoclomol in addition to OLPRUVA to really reap the rewards of this infrastructure you're going to build out, or is OLPRUVA a big enough opportunity alone in your view, and arimoclomol essentially, I guess, so to speak, gravy, all gravy on top of that?

Neil McFarlane (President and CEO)

Yeah. Thanks. Thanks, Oren. I'm gonna ask Josh to take that as one of the lead architects of the acquisition team.

Joshua Schafer (Chief Commercial Officer and EVP of Business Development)

Yeah. And, Oren, thanks again for that, that question. And, one of the reasons why this acquisition and, bringing the two companies together was so attractive for us was that we see, really a standalone potential of OLPRUVA to support, the build-out of a commercial team. Keep in mind, as I mentioned earlier, this is gonna be a very, focused and efficient team where we're, while we're putting appropriate resources behind it, we're being very prudent about, you know, how we're doing that in a way that, it's the right investment for, that opportunity. And then we can scale it as appropriate as arimoclomol and other products come on board.

But the deal was structured in a way that it took into consideration, you know, the possible scenario that we were only commercializing arimoclomol, and we believe that the investment that we're putting behind it will have an appropriate return, given the deal structure that we struck.

Oren Livnat (Managing Director and Senior Equity Research Analyst)

All right. And if I could just change gears to AZSTARYS. You know, I've covered you guys for a long time and spent a lot of time thinking about that, and it's ironic now that that product, I guess, really taken off. It's not really the focus of your story. So as you look at that product going forward, you know, it's doing really well and throwing off meaningful milestones and growing royalties now, is that something that you would look to potentially monetize for some non-dilutive financing now, going, you know, and sort of cut bait on that product and focus entirely on the orphan business, or is that something you want to maintain an ongoing relationship with Corium?

Neil McFarlane (President and CEO)

Yeah, thanks, Oren. We're pleased with the performance and the acceleration that's happening in the AZSTARYS program, for sure, with our partners. In regards to financing strategies and what we might do moving forward, I'll pass that off to Duane.

LaDuane Clifton (CFO, Secretary and Treasurer)

Yeah, Oren, right now, I think, you know, we're pleased in watching the progress of Corium, as Neil mentioned, and so we're excited to continue following those trends. You know, our financing strategy is a bit of a broader question than just a single part of our portfolio. And I think that, you know, we'll be evaluating all those things to make sure we have the capital we need to support Josh's efforts to make sure each of our catalysts are met, and that ultimately, we candidly want to get to a point where we're cash flow positive as a company, and we can, you know, we're going to continue working toward that.

Oren Livnat (Managing Director and Senior Equity Research Analyst)

All right. I think that's all I got for now. Thank you. Good luck.

LaDuane Clifton (CFO, Secretary and Treasurer)

Thank you.

Operator (participant)

Thank you. That does conclude our question and answer session for today. I would now like to turn the call back over to Neil McFarlane for any additional or closing remarks.

Neil McFarlane (President and CEO)

Thank you, Todd. You know, as we look to the end of 2023 and into 2024, we're focused on three key priorities. First, to close the Acer acquisition and commercialize OLPRUVA for patients. Second, to resubmit the arimoclomol NDA and make that product available. And third, to complete the Phase II trial in idiopathic hypersomnia and prepare to advance KP1077 with a differentiated profile into Phase III. Thank you all for your time today, and we look forward to speaking with you in the future.

Operator (participant)

This does conclude today's Zevra Therapeutics third quarter 2023 results conference call. You may disconnect your line at this time, and have a wonderful day.