KemPharm, Inc.

Good afternoon, ladies and gentlemen, and welcome to ChemPharm Q3 2020 Corporate Update Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. If anyone should require assistance during the conference, please press star zero on your touchtone telephone. As a reminder, this conference call may be recorded. I would now like to turn the conference over to your host, Mr. Jason Randall, Tiburant Strategic Advisor. Sir, the floor is yours.

Good afternoon and thank you for joining our call today to discuss ChemFarm's third quarter 2020 financial and corporate results. 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 ChemFarm'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. ChemPharm 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 reports ChemPharm files with the SEC, which are available on ChemPharm's website at www.chempharm.com under the investor relations section. We encourage you to review these documents carefully. Speaking on today's call will be Travis Mikkel, ChemPharm's President and CEO, and LaDwayne Clifton, CFO. Following remarks will open the call to questions. With that, it is my pleasure to introduce Travis.

Thank you, Jason, and thank you everyone for joining this afternoon. I want to run through the PIMFARM highlights here on slide four. Just a few things of note, we continue to execute on our plan as we've stated all along, continue to meet the obligations with our partners, continue to push forward with our NDA and development programs, and continue to address the base business, including the revenue as well as expenses, and continue to work on our debt. So as you can see from the highlights of our last quarter, that's very much what we've done. The FDA continues to review the NDA for KP415. We have a PDUFA date for March 2nd, 2021, which many of you are already familiar with. And to date, there's been no new safety issues, no safety issues, and no substantive issues identified as far as that review of the KP415. NDA. We announced recently the expansion of a consulting arrangement with Corium, our partner, commercial partner for KP415, as well as a collaboration intended to really launch off the APRDAS program between KVK and SureMed. I'll discuss a little bit more in detail soon. Also going to be presenting our financial results. Continue to have revenue based on our services to our partner. And we see that continuing for the foreseeable future. And all of this at the same time while trying to address maybe the only issue left to address for us, which is our outstanding debt. Turning to the next slide, looking more specifically at KP415. As I mentioned, there was no substantial issues or safety concerns that were raised on our last meeting with the FDA on August 13th. We do have a tentative date, December 1st of this year, in which we could also meet with the agency for a late cycle review meeting. This meeting would only be called if it was necessary to do so. So that would be to identify any approvability issues or just to confirm, you know, that there are no issues. So either way, we'll be explaining and sending along what happens at that meeting. along to investors and shareholders in order for you to know essentially how that is progressing. That is effectively the approvability point with the FDA is supposed to know whether the product would be approvable or not from then on. We also have announced and really working ahead with Corium on their commercial activities. They are targeting a mid-year a second half 2021 date for the product launch. This is after what would be expected to be a roughly 90-day process to achieve DEA scheduling and quota generation in order to be able to have that launch at that point. We do plan to still have a call with Coriam to provide an overview of the commercial plans and market dynamics related to ADHD, their viewpoints on KP415, Again, scheduling has been a challenge for multiple reasons, all of them good, so the date to be announced as soon as possible. Turning now to that agreement on slide six here, the agreement between Corium and ChemPharm, continue to build on the relationship that has put us in the position that we're in with this great partnership on KB415. Now adding additional services from our R&D staff able to support Corium in their endeavors, internal endeavors to develop other products not related to our prodrugs. So this is already an expansion upon what we were already doing to support them in their commercial activities, which include manufacturing, medical affairs, scientific publications, and such. So you can see the relationship there, the kind of co-support trust, as it were, is continuing to build. This is a fairly substantial financial commitment based on the relationship here. Our support is up to $15.6 million past the PDUFA date for a full year. Certainly that shows a commitment on both parties' side and one that we're very excited about as we expand that relationship. On the next slide, referring to SHERMED and KDK agreement. Excuse me. The newly announced program actually has a new name. It's referred to as Perspectives in Care. This is a tool that will be used to educate physicians as well as to create research in which we will be able to identify and look for more information about the abuse patterns, potential abuse patterns, sorry, for products like APIDAS. And this particular effort will be focused very much on the research around what would happen in the appropriate switching situation where a product is switched from a hydrocodone product to something like APIDAS when it's an appropriate script to do that with. This pilot program is intended to measure or gauge these abuse-related outcomes with Avidaz, and then expand those efforts further once those are successful. So the launch officially has a date, so the program will launch on December 1st in Alabama. This is actually, Alabama is a unique situation. It has the highest utilization per capita in the United States for the hydrocodone acetaminophen type products. And you can see here, as we've described, it's more than 129 million tablets dispensed annually in 2019. Certainly a great opportunity and hopefully some good momentum now with the APIDAS project. And with that, I'm actually going to turn the rest of the call over, except for wrapping up, some summary comments to Edwin Clifton, our CFO. Edwin?

Thank you, Travis, and good afternoon, everyone. Looking ahead to slide eight, as you know, on October 8th, we announced that the company is going to hold a special meeting with stockholders to obtain authorization for potential reverse stocks of the company's common stock. Just this past Monday, we announced that that special meeting has been rescheduled to now take place on November 17th at 8 a.m. via webcast. We encourage you to review the proxy statement that has been filed with the SEC for more details on how to attend the meeting and for shareholders how to exercise your voting rights on this matter. We have received a number of questions from shareholders about the authorization of a reverse stock split, what it could mean for the company, and I hope to address a few of those today. One of the first items to again make clear is that the special meeting is intended to obtain the authorization for a reverse stock split and not to make a reverse stock split effective immediately. If shareholders approve the authorization at the upcoming special meeting, such an authorization would be valid for up to 12 months following that meeting, and then the Board of Directors would make the determination of when to effect a reverse stock split, if at all. This decision will be tied closely to our debt restructuring process, and any transaction that we seek to close would need to be in the best interest of both the company and our shareholders in order to proceed with also making a reverse stock split effective. Another important consideration is that the relevant initial listing requirements for ChemPharm to relist on the NASDAQ capital market include that we have both a bid price of at least $4 per share and stockholders' equity of at least $5 million. As of September 30th, the quarter we're just now reporting, we had a stockholders' deficit of $62.3 million, which means that any transaction that we undertake would need to address this balance. which is a swing of a little more than $67 million. If we cannot address the equity deficit, then making a reverse stock split effective would not actually enable relisting on NASDAQ. We have to have both. Turning now to slide nine, we have also received questions about the reverse stock split range. And of necessity, it is intentionally broad in order to allow us to reach the minimum bid price of $4. It is impossible to predict the timing of a transaction if there is one at all, and therefore impossible to predict the prevailing circumstances that will ultimately determine the split range that could be made effective. I am not sure that either extreme of the range represents the most likely scenario, But in any event, when making the determination of whether a transaction and a reverse stock split are in the best interest of the company and its shareholders, the reverse split ratio will have to be carefully considered. Regarding the timing, the administrative process for holding a special meeting is very lengthy. And if we're successful in negotiating the terms of a debt restructuring transaction that will meet our goals, then we will need the ability to move quickly to consummate such a transaction. We are seeking this authorization now so that we will have the freedom to operate and negotiate with this tool available to us if needed to get the right deal done. Ultimately, all of our current shareholders are worried about potential dilution, including me, Travis, and our board. We are all shareholders together with you. At this point, though, while a reverse stock split does not itself create dilution, Many of the options that we have at our disposal for debt restructuring will require varying degrees of either equity or asset dilution. For example, converting debt to equity, as we have done earlier this year, was dilutive to equity, but a royalty financing technically dilutes the value of future assets by taking a portion of future cash flows to repay the financing. Ultimately, we are intensely focused on minimizing the overall cost of capital, of which dilution is certainly a component. Finally, it's always important to keep in mind that while there are costs associated with the process that we're working through, there are also benefits. Regaining our listing on NASDAQ has the potential to provide access to a larger institutional investor base than we currently have while trading on the OTC. If it is possible to relist prior to our upcoming milestones for KP415, it could have the effect of unlocking shareholder value. However, costs and benefits always have to be carefully analyzed. So now we'll turn to slide 10 and focus our attention on the financial results for Q3 2020. As Travis mentioned, we reported revenue of $1.9 million, which was primarily derived from our consulting services. This was our fifth consecutive quarter of revenue, and with the expanded services arrangement with Corium, we expect revenue to continue through March of 2022. We reported a net loss of 4 cents per basic and diluted share. We had an operating loss for Q3 of 20 of $1.2 million, and both our R&D and G&A expenses were more than 50% less than Q3 of last year, as we continue to carefully manage those items. Turning to the next slide, we see that as of September 30th, we had total cash of $5.5 million, which was a decrease of $1.1 million compared to the prior quarter of June 30. This was in line with our ongoing cash burn rate of approximately $1 million per quarter. Our cash runway continues to take us up to the debt maturity date of March 31st, 21, and if we're able to restructure the debt prior to that date, the cash runway could take us further. Debt as of September 30th, 2020 was approximately $66 million, And as of yesterday, our shares outstanding were $72.5 million. On the next slide, and as we've already alluded to, we continue to actively work through the debt restructuring process. We have several options that we've outlined here, such as converting debt to equity, replacing the existing debt with new debt that has an extended maturity, or repayment of the debt from various sources, including potential upcoming milestone payments under the KP415 license agreement, proceeds from a secondary offering or a loyalty financing. The process we're working through is complex, and as we seek to find the right transaction or series of transactions, it is most likely that the ultimate solution will be some combination of these options or even some other option that may become available. Getting the right deal to ensure our ability to create long-term value is our first priority. We also want to enable a potential uplift to NASDAQ if we can. We will keep you updated as these efforts continue to progress. With that, I'll turn the call back to Travis.

Thanks, Ludwine. To kind of expand and summarize from the next steps for ChemPharm, As I mentioned before, we have the December 1st FDA meeting upcoming, the BDUFA date in March, up to $48 million in milestones, depending on the approval and labeling of KP415. And then we're less than a year away, potentially, from a launch with a highly differentiated product in a very large market with a need for a product like this. We continue to build the base business by adding revenue, addressing the debt, and now now luckily launching APIDAS with KVK and SureMed in the very near future. We're also looking ahead. We're looking to prepare the KP879IND, file it as soon as recently possible, as well as provide you with a more detailed pipeline update in the very near future, something that we're all looking forward to beyond KP415. As I hope you have been able to summarize from our presentation, we believe there is tremendous value As we see it right now, a lot of that value is untapped. Just as an example to highlight, our current enterprise value demonstrates this. We're on the OTC, which is a fairly inefficient market relative to the NASDAQ or other capital markets, in which to measure that value. And so being able to capture that upside, provide the opportunities, we need to address our debt, we need to potentially up-list, And we need to continue to execute on our plan to create that value. And ultimately, once the value is untapped, we really believe it will be in a far more meaningful way than it has been on the OTC. So that's just one example of where we see the plan and where we think we will be going in the near future. And we'll continue to update you as we advance along. So with that, I believe our presentation is completed. welcome any questions you may have.

Thank you so much. Ladies and gentlemen, if you have a question at this time, please press star then the number one key on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. We stand by while we compile the Q&A roster. Your first question comes from the line of Oren Levenant from HC Wainwright. Your line is open.

Hello. Can you hear me? Hi, Oren. Good afternoon.

Great. Just making sure. I have a few, if that's all right. Just regarding the regulatory status of 415, can you just remind us or clue us into what is the typical regulation type of agenda items that might be covered in the mid-cycle review versus this potential December 1st late-cycle review, if there is any difference. And I guess what type of issues at this stage, this late review, might you be coming up with? Are we just talking about labeling negotiations, or are these really approvability issues regardless of the label?

Thanks. Sure. Just a reminder, and thanks for the question, Oren. I just want to remind everybody, KB415 is actually, from a regulatory perspective, under what's known as the program. So the program is the regulatory guidance that follows regarding new molecular entities. And this guidance, this program, as it were, was intended to provide sponsors with the ability to get the agency's feedback in a timely fashion without waiting until the PDUFA date to find out if there was real issues. So the mid-cycle meeting is intended to identify any issues that the agency is currently reviewing, you know, regarding labeling, regarding study designs, whatever it may be, as well as identify any major safety concerns that would immediately highlight this as the non-approval. So we know from the mid-stage meeting that there was no issues regarding safety, and that the issues that they were reviewing at that time and have kind of expanded since then, were really related to things that we understood, the duration of the product and the clinical attributes, but nothing really, again, that was unexpected. The late-stage meeting is really the approvability meeting. So now we'll have the opportunity to hear from the agency about their views on the safety and advocacy, and from there then they'll be working on the labelings. So, again, we know this is a methylphenidate-based product. We know it was efficacious in our clinical studies, and they've already told us there's no major safety concerns. So, we feel, again, that this meeting will be helpful and useful to see what the agency also agrees with us, but every indication is that we're on the right track.

Okay. Separately, regarding the expanded agreement with Corium, I'm just trying to understand what that really encompasses. I mean, first of all, can you confirm that 15.6 or up to 15.6 million, that includes whatever was remaining on the prior consulting agreement, correct? And I noticed the wording in the initial press release was interesting. It said KP415 and or, you know, I read it as other current or future products in the Corium portfolio. So I'm wondering, does this also involve you guys potentially working with them on, portfolio products that aren't yours originally that are maybe some other stuff in there, Hopper?

I'll try to take this question, Travis. Yeah, Oren, so thanks for the question. I understand why it can be a little confusing. So in prior quarters, we have reported revenue that we had generated underneath the KP415 license agreement. It did include a provision that allowed us to essentially provide services to them on a fee, you know, quantity times price kind of basis, right? We work a number of hours, you get paid, whatever. And so some of those activities were specific to KP415 commercial support. Okay, so and then in the current arrangement then and what we were trying to describe there is that sort of prior arrangements under the license agreement that allowed us to provide that commercial support has really been converted into a flat fee arrangement, okay, that gives us more visibility. But that's actually the smaller piece of it. The bigger piece of it was a new arrangement with Corium, which, as you just pointed out, is where they have contracted us for our product development and regulatory services to assist them on products that they already have either in their pipeline today that are not related to chem farm or other future products. And so these products may not necessarily even be products. It's things that they ask us to work on to assist them. And so again, that's a an expansion then of what we've been providing to Corey. And those both of those work orders extend out to March 31st, 2022, and so therefore provide us You know, the visibility to see that we'll have revenue, at least from these, there's the potential of revenue up through that period.

Just to follow up on that, is there any change to the economics of your deal regarding milestones or royalties? And just remind us, are there any milestones in your one or more agreements with Coriam that potentially come before that PDUFA date?

Okay, so first of all, no, there was no impact or change to the milestones or any other provision of the license agreement. This really was just intended to expand the amount of commercial support and other support they would get from us. And then the second part there, the next upcoming milestone for KP415 is related to the potential approval on the PDUFA date.

Got it. And if I may be so greedy... I ask every call, and I did speak to it earlier in the script a little bit, regarding Quorium potentially coming out of the shadows, so to speak, to announce themselves and KPU 4.15 to the world, at least pre-launch. And I'm just wondering, you said there was a couple things making that hard to schedule. Most or all of them good. So I'm wondering what are potential, other than actually just scheduling things, what are potential gating factors for people such a coming out party, and are they KP415 regulatory related? Thanks.

Yeah, certainly, you know, there's been nothing for us to update regulatory-wise, so that wasn't the issue. Again, Corium is the organization in transition. As you would expect, they're adding a significant commercial team, and that commercial team had a lot of work to do to even prepare to get to this point. So, We wanted to provide a relevant update, something that was informed with a directionality, as opposed to something that was early stage and just at a very high level. So I think that's what Corey and Kim both decided, let's do that. I think we're reaching that point now. We just have to settle on a date.

Beautiful. And an apology for asking so many questions. Thank you very much.

Thank you, Warren.

Thank you. Thank you. Once again, you may press star 1 to ask a question. Once again, if you would like to ask a question, you may press star 1 to ask a question. Okay, I am showing no further questions at this time. I would like to turn the conference back to Travis Nickell, President and CEO of CAMFARM.

I'd like to thank everybody for their time today. Again, we'll continue to execute our plan and provide updates in a timely fashion as it continues to unfold before us. Appreciate your time. Thanks, everyone.

Thank you, speakers. Ladies and gentlemen, this concludes today's conference call. Thank you all for joining. You may now disconnect.