KemPharm, Inc.

Good afternoon and welcome to the ChemPharm third quarter 2022 corporate and financial results conference call. Currently, all callers have been placed in listen-only mode and following management's prepared remarks, the calls will be opened up for questions. If you would like to ask a question at that time, please press star 1 on your telephone keypad. If you need to remove yourself from the queue, press star 2. At any time, if you should need operator assistance, press star zero. Please be advised that today's call is being recorded. I will now turn the call over to Nicole Oshner, ChemFarms Vice President, Investor Relations and Corporate Communications. Thank you, and ma'am, you may begin.

Good afternoon, and thank you for joining our call today to discuss ChemFarms' third quarter 2022 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 ChemPharm's expectations regarding future operating results. Forward-looking statements are made pursuant to the safe harbor provisions of the federal securities law and represent management's current expectations. Actual results may differ materially. ChemPharm disclaims any obligation to update or revise forward-looking statements except as required by law. For complete information regarding forward-looking statements, risks, and uncertainties can be found in ChemFarm's filings with the SEC, which are available on ChemFarm's website under the investor relations section. Speaking on today's call will be Travis Mickel, ChemFarm's president and CEO, and LeDwayne Clifton, CFO. Following the remarks, Travis and LeDwayne will participate in a question and answer session. With that, it's my pleasure to introduce Travis.

Thanks, Nicole, and thanks, everyone, for joining today. Excuse me. For those who are not as familiar with ChemPharm, I'd like to give just a brief introductory statement. ChemPharm is focused on the development and discovery of novel rare CNS and neurodegenerative disorders as well as lysosomal storage diseases. While historically we have a number of other assets that have been licensed, Our new focus is on the development of potential products that we could internally commercialize. That's all built on a foundation of strong science, as well as a good foundation of financial... Excuse me. A little bit of allergies that have caught up with me. So a strong balance sheet. Next slide, please. Just to go over briefly the recent highlights from the press release and results from the Q3. Of course, there's a number of different things going on with ermoclomol. And many of these we have not continuously updated. But just as a highlight, we recently had the completion of the four-year open label safety trial for ermoclomol. demonstrating a long-term effect as well as safety of Arimaclumol over that time period. We've been having ongoing collaborative dialogue with the FDA. This includes meetings, submissions, back and forth with questions and answers and so forth, so a very collaborative discussion there. And we've been working to bring in all the new data as well as some of the other data that we weren't expecting to have to add to the NDA. Based on all of that, we're now targeting the resubmission as early as Q3 of next year. If STARS continues to generate sales and milestones potential for the royalty revenue with the STARS, we know that Corium's continuing their effort there. KP1077 development program is going well. We just announced results for the phase one cardiovascular trial. Certainly very positive results for us. indicating we're right on the right track we want to be with that particular program in development. And then with that, we do expect to initiate the phase two trial before year end. And then as Dwayne will highlight a little bit in more detail, we do have a strong balance sheet. We've had revenue from the French EAP as we expected, as well as other forms of revenue, and have ample capital to do everything that we expect to do and perhaps a lot more. So specifically looking at the various product development highlights, just a brief overview of ermoclomol. Ermoclomol is intended for the treatment of Neiman-Peck type C. This is an ultra-rare lysosomal storage disorder, most of the side effects being that related to neurological symptoms related to cognition, hearing loss, speech, swallowing, et cetera. We were able to acquire the product after a CRL and some financial difficulty, the former sponsor, Orphazyme, were able to get it for a highly efficient sort of structure. We see this as a high value opportunity for us, not only something that already generates revenue through the French EAP, but could really considerably advance the company into the commercial stage of these rare disorders. So with that, you know, the intended resubmission in third quarter will help advance those goals. Next slide, please. So looking at the path to resubmission, as I mentioned there briefly, we are continuing to have this dialogue with the FDA. Again, submission of some of these studies that were completed prior to our actually getting the asset, but since the CRL has been a part of this entire process, This really, I do believe, shows the interaction with the agency as being very collaborative and for them wanting to see an advancement here. We're also working to bolster the arguments that were made in the original NDA, as well as specifically addressing each of the CRL issues. With that, something that we were not aware of was that the four-year safety trial was wrapping up and then that database would be locked down. And in fact, the final report would be issued. Knowing all of that, it wouldn't make any sense for us to submit that data, that entire study, submit the NDA associated with that, without that data in there. We think it's very strong data, very supportive of our potential safety and efficacy for the product. So it's certainly something that we feel is a critical piece. And looking forward, I think one question that everybody should have on their mind we see this potential delay from our previous guidance is, you know, what else has the FDA said? And the FDA has not raised any new issues or concerns. It's been really about reviewing what they didn't know from the previous filings as well as what has been generated since then. And there's been no request for any new efficacy trial from the FDA. Very critical piece here. No new issues than what we've already identified as well as no new efficacy trial. We still believe that there's a very viable path, but there will always be the possibility in any regulatory submission like this that we may choose to some additional work. We may choose to go through an appeal process as well as request either by the FDA or by ChemPharm a potential for an adcom for this particular product. Briefly looking at KP1077, this product is actually intended for the treatment of idiopathic hypersomnia as well as narcolepsy. It's 100% of Sirdex methylphenidate, which is a prodrug of methylphenidate. It's already been designated as a C4 classification as far as controlled substance. This is also an orphan disease, a rare disease, idiopathic hypersomnia actually occurs less than narcolepsy. Our intended benefit here is that we can provide higher exposure, providing more waking through a potential pathway that addresses the major symptoms of IH, including sleep inertia or waking, as well as brain fog. Looking at where we sit and what next stages are, for idiopathic hypersomnia, this is our lead indication. We filed an INE earlier this year. We expect to initiate our phase two trial before the end of the year. Everything seems to be going well there. Sites are enrolling, getting up to speed, starting to look forward to recruitment, and so forth. We expect to have interim data from that phase two trial by roughly mid-year. Next year, we'll provide more detail onto that, as well as top line data before year end of next year. After we get that study underway and perhaps even after interim data, we will initiate a second study, and this time in narcolepsy. In that particular case, we're looking at an add-on indication and not as our primary commercial and development program. So I think that gives an update on both of our development programs as well as where the status of the company is overall. And I'm going to actually turn it over to LaDwayne to provide some more details on the financial position.

Thanks, Travis. As Travis mentioned earlier in his opening remarks, we had another positive quarter, a good quarter, and specifically our balance sheet remains very strong. Revenue reported for this quarter is $2.9 million, which is net of certain liabilities associated with the Aramaka EAP program. That's coming in as we expected. Our net loss for the quarter is about $0.19 per basic and diluted share, which was driven primarily by R&D expense and G&A expense, but again, offset by the net revenues. As of September 30th, our cash balance was $107.4 million, and that's a decrease of about $7 million compared to the prior quarter. It really was comprised of sort of the ongoing third-party R&D costs as well as other expenses, and notably investment of working capital related to the French EAP program. So you'll see on our balance sheet that there was an increase in accounts receivable. And so as we move forward, we do expect that cash flow to begin operating in a normal course. Ultimately, our cash balance, based on our current operating forecast, allows our resources to extend our runway into 2026. And also, as Travis has mentioned, to the extent that ASTARIS generates royalty revenue or additional milestones, which we still see is pretty much an important thing to be looking for, that will have the effect of potentially extending that runway further. Thank you, and Travis, back to you.

Thanks, Dwayne. So just looking forward as we go and review the upcoming milestones, kind of reiterate our intention to refile the NDA Q3 of next year. Anticipate, you know, of course, the quarterly revenue from the French EAP program. Staris will continue to monitor scripts and see how that goes. I think that those are certainly tracking in the right direction. For KP1077, We have the expectation for the trial to start by the end of the year. Interim results should be available mid-year with those particular final results by the year end, as well as the initiation of a narcolepsy trial sometime in 2023. And then as LaDoyne highlighted again, a solid balance sheet, a lot of good possible expansion opportunities, not just with our pipeline, but through what we already have in Air Moc-Le-Mont, and KP 1077, and certainly a long runway that can only be bolstered by additional revenue. So with that, I'm actually going to turn it over and see if there's any questions.

Thank you, sir. And at this time, we will open the floor for questions. If you wish to ask a question, please press star 1 on your telephone keypad. You may remove yourself from the queue by pressing star 2. Our first question will come from Sumanth Kulkarni with Canaccord. Your line is open.

Definitely. Thanks for taking my questions. I have a bunch here, so I'll start with one. It looks like at this time you don't have any new requests from the FDA, but has the agency already finished reviewing the new data that you've generated? If not, when do you think the FDA could finish that, and how confident are you that the FDA's new analysis will not lead to the need for a new clinical trial?

I mean, it's an ongoing sort of review. So we've submitted, and I won't give particular details, but whatever we've submitted to the agency they've fully reviewed, there will be a detailed review post-submission. I mean, that's just standard course. But they've already asked questions and weighed in on some of the information. That is not the totality of that information, but we could actually file the NDA if it were. We have more to provide them as well as more to put into the NDA that they won't be able to review until then. So I hope that answers your question.

Yep. And then it seems like the safety study is the new piece of information that is the key thing that led you to this potential, like the delay in the potential filings. So were there any specific findings in the safety study that you might consider new or counterintuitive relative to the safety data that is already publicly known on Aramoclomol? And is there any risk related to continuation of an EAP program for the product based on the new safety data?

I mean, that particular study and the results, it actually did as well measure the NPC-CSS. The efficacy score was continuously measured as well. actually showed a long and lasting effect of Aromaclomol in those patients who were in the study, which would have been not just four years, but five years in total. And additionally, there were no safety signals that were different than there was in the double-blinded phase of the trial. I think the data is great. It's already been presented by Mark Patterson. at two MPC conferences, including the Parsegian Conference and then the conference back in July. So, you know, those results are already out there. Certainly, we can put those up on our website at some point here. I think they're helpful. I think there's also results of the two failed trials that Orthozyme attempted with ALS and IBM that show that Again, the safety here, 500-plus patients, there's been no significant safety signal from Aramoclomol in all of that. That's pretty rare to have in this type of disease, that level of safety and that many patients exposed for a long period of time.

And then one more before I hop back into the queue. Could you give us any details on what specific parts of a proposed NDA package may be most in need of strengthening that led to this push out of the timeline? And would you say that the new timeline is conservative relative to the information needed to be generated?

Yeah, I would say it's conservative. I think, you know, the difference between March and July is is Q1 to Q3, right? So it doesn't certainly have to indicate a six- or nine-month delay from those sort of things. But when we looked at what needed to be bolstered, there was nothing. I mean, we really had all the data. It's all about putting it together. And then what has kind of led to this is the safety trial. It wasn't something we anticipated putting into the submission, so that has to go in and we really do believe it's a cornerstone of our arguments for the benefit, as well as a sequential sort of submission pattern. The agency wants to see something and they want more from that. So, you know, we can't do things in parallel as much as we'd like to. And so it's that sequential pattern of providing more, getting feedback, going back, maybe meeting with them formally or informally that, you know, has kind of pushed it out a little bit. which, again, I think is entirely very positive because we've never received anything back that has indicated otherwise.

Very helpful. Thank you.

Thank you. Our next question will come from Jonathan Ashok with Roth Capital Partners. Your line is open.

Thank you, guys. Good evening. Would you break down the revenue to whatever extent you can? Because it's not 100% Aramaco Mall from France. Can you help us out with just that nitty-gritty?

Yeah, there was a portion of that that was royalties that came into us from net sales of stores, our percentage of that. And you'll see when we follow our 10Q, that was around, we had around, we recognized about $200,000 or so of royalty revenue on a store's.

Okay, so it's simply about 2.7 arrow Malcolm Hall, 200 Astaris, and no other line item, right?

Yes.

Thank you very much, guys.

Thank you. This does conclude the Q&A portion of today's call, and I would now like to turn it back to Travis Mickel for any additional or closing remarks.

Thank you. Thank you again for your participation and joining us today. I appreciate the good questions, additional analysis, and hopefully additional color on what we're doing and what we hope to achieve, not just the remainder of this year, but next year as well. So thanks, everyone. Hope you have a nice evening.

Thank you, ladies and gentlemen. This does conclude today's ChemPharm third quarter 2022 earnings call-in webcast. You may disconnect your line at this time and have a wonderful day.