Elanco Animal Health Incorporated (ELAN) Q2 2018 Earnings Report, Transcript and Summary

Welcome to the Second Quarter 2018 Financial Results Conference Call and Webcast for Kindred Biosciences. At this time, all participants have been placed on listen-only mode. At the end of the prepared statements, participants will have the opportunity to ask questions. [Operator Instructions]. Please note that the remarks today will include forward-looking statements and that actual results could differ materially from those projected or implied in our forward-looking statements. For a description of important factors that could cause actual results to differ, we refer you to the forward-looking statements in today's press release and the note on forward-looking statements in the company's SEC filings. It is now my pleasure to turn the call over to KindredBio's CEO and President, Richard Chin. Dr. Chin, please proceed.

Thank you, Operator. Good afternoon, and welcome to our second quarter 2018 financial results call. Joining me today from the management team at KindredBio are Denise Bevers, our COO; and Wendy Wee, our CFO. The second quarter was a banner quarter for KindredBio. We transitioned from a development stage company to a commercial stage company, a little more than five years after founding the company with the approval of an innovative transformative product Mirataz. It is still very early in the Mirataz launch but we're happy with it so far. Since we are only about a month into the launch, we have very limited data, so I'd really caution everyone about drawing any conclusion. But what I can tell you is that indicators to-date are consistent with the successful launch, the distributors are ordering, the trends are pointing in the right direction, and the anecdotal feedback is excellent. Our sales specialists are fielding out lot of request and the distributors are very excited. Denise will provide you a little more detail on the launch later on this call. Assuming a successful launch, we're fully prepared to maximize the opportunity. We have the capacity to meet greater volume, we have identified the next wave of hiring, and we have aggressive Phase IV programs underway. Some of you know that both Denise and I have extensive experience in medical affairs. We are both experts in launches and commercialization not just in drug development, so we know how to extract maximum value out of drugs. Now taking a step back what's exciting is not just the approval, but by launching Mirataz we have validated our business model. We have brought Mirataz to market for under $5 million and in less than five years. But even more exciting than that is the fact that we have built an organization that is poised to repeat this rapid inefficient drug development process over and over again. We have one of the most robust pipeline in industry and we're extending the lead over our competitors. We have confidence in our pipeline and where investing in our future. And the future is extremely attractive. When we started KindredBio, the median amount that a pet parent was willing to spend to save the life of his or her pet was about $5,000. Now less than six years later, that figure is $10,000. This is a major social trend and it's not slowing down, it's speeding up. Denise is going to discuss our lead pipeline candidates in detail, but I want to highlight a few things. First on Zimeta IV we have completed everything we need to do and we're just waiting for the FDA to close out the inspection of our manufacturing partners. Second, our risk pipeline of small molecules, some of which have not been disclosed, are advancing well. I think we will have some products that are as successful or perhaps even more successful than Mirataz. Third, we believe for a long time that biologics by the future of companion animal medicine and that whoever is the leader in that field will be the leader in the entire sector. More and more it appears that this thesis is bearing out. We have, as you know, a fantastic biologics pipeline including an IL-31 antibody, IL-4/IL-13 molecule, epoCat among others. We're advancing the pipeline, establishing IT, and even developing new technologies within the biologic space such as KIND body. We're one of the first or often the first to do this type of work so we're making new discoveries that put us in a excellent IT position relative to those who come after us. And every day that passes we put more distance between us and the other companies that are trying to catch up. And with the manufacturing plant in California, and a new commercial scale plant we're building in Kansas, we anticipate that we will have our costs of goods advantage over many of our competitors. We also continue to look for acquisitions that make sense and are at a reasonable valuation. The ideal acquisition was ad revenue be a strategic fit or enhance that capabilities in development. We have a lot of opportunities but we won't do an acquisition unless we're confident that is a high quality one that will add value. Thank you. I will now turn the call over to Denise.

Thank you, Richard. I will start with an update on the launch of Mirataz followed by an update on our key pipeline candidates and commercial manufacturing. As all of you know, we have been diligently preparing for our transition to a commercial stage company for some time now which is evident in the speed with which our team brought Mirataz to market. Upon receiving FDA approval in early May, our sales organization promptly began training distributors and their call centers and contacting corporate accounts, specialty hospitals and other key accounts ahead of shipping. This meant that within two weeks of approval our sales organization and distributor reps were already taking initial stocking preorders. Then by July 9th, just two months post-approval, we announced that Mirataz was commercially available in the United States. By veterinary standards, this is a very rapid launch timeline and speaks to the high caliber of talent within our commercial, operations, and supply chain teams. As you know some companies even larger ones, sometimes take over a year to launch their products after approval. As the first and only transdermal medication specifically developed an FDA approved for the management of weight loss in cats, we've always recognized the important role Mirataz plays in helping millions of cats with a serious medical condition. While I must also stress that it is far too early to tell how rapid the adoption of Mirataz will ultimately be, the initial uptake of the product has been very encouraging. Initial stocking orders and product penetration are in line with our expectations and reflect broad-based demand. I'm pleased to share that the three largest national distributors, two chosen regional distributors, and two home delivery partners have been shipping the product to customers. We are being judicious with the distributions initial stocking orders preferring smaller initial orders and faster reorders that accurately reflect underlying customer demand rather than large initial stocking orders that could take time to work through which would have us result in a lumpy launch profile. As a reminder, distributors have a 90-day right of return on the initial stocking period meaning we can only recognize revenue in the event of reorders. We are starting to see reorders through which is ahead of our expectation. We will of course provide more detail about this in our third quarter call. We are also encouraged by the broad base of adoption of Mirataz to-date. In addition to the specialty hospitals, emergency clinics, and feline specialists, general practitioners are also ordering the product. With an average of 100 new clinics facing an initial order per day, this validates our pre-approval market research regarding penetration and rapid uptick. I'm excited to announce that the VCA has added Mirataz to their product catalogue which is their terminology for formulary. As you may know VCA has over 750 veterinary hospitals in the United States. The progress we made to-date reflects in large part the industry-leading sales and veterinary affairs organizations we've assembled. Our sales team represents the top talent in industry with deep customer and distributor relationships at an average of 15 years of experience. Our goal is to keep staffing, unlock separate demand, and having interviewed over 200 people we have already identified the next year specialist who could quickly join the team should Mirataz sales more in such an expansion. All-in all we are encouraged by the initial response to Mirataz's launch and remain excited about the products long-term potential. Again we will look forward to providing more detail on initial sales and penetration during our Q3 call. Now let me move on to some of our key pipeline candidates beginning with Zimeta IV our product for the control of fever in horses. As we have previously disclosed, the FDA has approved the safety and effectiveness technical section for Zimeta IV and indicated that it does not had any additional questions or request from KindredBio regarding the manufacturing technical section. We have not received word yet on from the FDA on when the approval will be so at this point, we believe the approval maybe at the end of the year or early next year. I'm pleased to report that our API manufacturer has responded to each of the findings on the most recent inspection and that our drug product manufacturer had a successful inspection in July. Once FDA has closed out the inspections of our contract manufacturers, they will finish the review of our manufacturing technical section. Regarding Zimeta Oral, our proprietary gel that is expected to expand the use of the drug and build upon the success of Zimeta IV we remain in discussions with FDA regarding our submissions and are in the process of transferring the product to the commercial manufacturer. As we have previously described, we are taking a multi-prong approach towards the treatment of atopic dermatitis with a portfolio of biologics candidate. We're pleased to have initiated the pilot effectiveness studies for our fully canonized anti-IL-31 antibody and anticipated reporting top-line data by the end of 2018. In addition, we are in the process of initiating pilot field effectiveness studies for several other molecules for atopic dermatitis including fully canonized anti-IL-17 antibody and canine anti-IL-4/IL-13 SINK molecule. Atopic dermatitis is one of the most common skin diseases in dogs and represents a significant unmet medical need. The market is expected to reach a combined sales of over $500 million this year. As atopic dermatitis has both an inflammation and itch component, we believe as do our thought leaders in the field that there are additional drug targets that maybe useful by themselves or in combination therapy. Consistent with human precedence in rheumatoid arthritis and multiple sclerosis we also expect a large market such as this to sustain multiple blockbusters. As such, we are pursuing a multi-prong approach toward atopic dermatitis with a portfolio of promising biologics. Enrolment is also ongoing in the pilot field effectiveness study of our enhanced version of epoCat for the control of non-regenerative anemia in cats. Anemia is a common condition in older cats which is often associated with chronic kidney disease resulting in decreased levels of endogenous erythropoietin. EpoCat is a recombinant protein that has been specifically engineered by KindredBio with a prolonged half life compared to endogenous feline erythropoietin. Our PK data suggests that the molecule may have a sufficiently long half life to allow for once monthly dosing. As we previously reported the pilot field effectiveness study of KIND-014 for the treatment of gastric ulcers in horses has been completed with positive result. We selected the formulation for development and anticipate moving into a pivotal field study in the first quarter of 2019. We have many more product candidates in the pipeline as referenced in our pipeline chart on our website and we will continue to report on them as they move further along in development. Given our transition to a revenue generating company and the obvious interest in Mirataz, this would be a very long call if I were to go through our deep pipeline in detail. With that, I will move on to manufacturing. Construction on the biologics manufacturing lines in our Elwood, Kansas facility is proceeding to plan. The facility includes approximately 180,000 square feet with clean rooms, utility, equipment and related quality documentation which will support our initial manufacturing needs for our monoclonal antibodies for atopic dermatitis. We expect construction to be completed by mid-2019. Needless to say I'm very pleased with the progress we are making as an organization. Our commercial team is off to a strong start and we are encouraged by the response from veterinarians, distributors, and cat owners to the launch of Mirataz. Our transition to a commercial stage company is complemented by advances across our deep pipeline and we are preparing for the future with the build-out of the state-of-the-art manufacturing plant in Kansas to support our biologics candidate. With that, I will now turn the call over to Wendy to provide an update on our second quarter 2018 financial.

Thank you, Denise. For the quarter ended June 30, 2018, KindredBio reported a net loss of $11.2 million or $0.39 per share as compared to a net loss of $6.8 million or $0.29 per share for the same period in 2017. For the six months ended June 30, 2018, the net loss was $21.2 million or $0.75 per share as compared to a net loss of $13.3 million or $0.59 per share for the same period in 2017. Total research and development expenses for the three and six months ended June 30 were $5.8 million and $11.2 million respectively compared to $3.9 million and $7.6 million for the same periods in 2017. Stock-based compensation expense included in research and development expense was $0.4 million and $0.9 million for the three and six months ended June 30th as compared to $0.4 million and $0.8 million for the same periods in 2017. The year-over-year increase in research and development expenses was primarily due to higher headcount and consulting expenses as we focus on advancing our biologics program as well as increased biologics process development, batch production, testing costs including lab supplies. Total general and administrative expenses were $5.8 million and $10.7 million for the three and six months ended June 30, 2018, compared to $3.1 million and $5.9 million for the same periods in 2017. The across the board increase in general and administrative expenses included a mix of higher payroll and related expenses marketing, travel, and conference expenses in conjunction with pre-launch activities and the build-out of a small commercial team. In addition, higher corporate infrastructure costs and stock-based compensation expense also contributed to the increase in expenses. Stock-based compensation expense included in general and administrative expense was $1 million and $2 million for the three and six months ended June 30, 2018, as compared to $0.9 million and $1.7 million for the same periods in 2017. As of June 30, 2018, KindredBio had $109.9 million in cash, cash equivalents, and investments compared with $82.5 million as of December 31, 2017. Net cash used in operating activities for the first six months of 2018 was approximately $19.8 million offset by a total of $49.2 million of net cash proceeds from an underwritten public offering of our common stock and the market equity offering program. We also invested approximately $2.4 million in capital expenditures for the build-out of our Elwood, Kansas manufacturing facility. For the 2018 calendar year, we reiterate our previous guidance for operating expenses to be in the range of $44 million to $48 million excluding the impact of stock-based compensation expense. We are preparing for the commercial launch of Zimeta, scaling up the commercial team, and continuing to focus on the development of our core pipeline candidates and programs. Additionally we plan to invest $14 million to $16 million in capital expenditures on the construction and build-out of our Elwood, Kansas facility of which approximately 50% is expected to take place in 2019. Revenues from Mirataz are expected to have a substantial impact on cash utilization. With that, I will turn the call back over to Richard.

Thank you, Wendy. Operator, we're ready for questions.

Thank you. [Operator Instructions]. And our first question comes from Brandon Folkes from Cantor Fitzgerald, your line is open.

Hi, thanks for taking my questions and congratulations on all the progress year-to-date. Firstly given that it’s earlier in the launch and I know you may not have too much to say but is there any anecdotal feedback you could share with us from the Mirataz launch perhaps anything you've heard that surprised you? And then secondly, can you just remind us again what percentage of mirtazapine historically has been used chronically off-label and what are the economics to divest on using Mirataz and how would this compare with the generic? And then lastly, can you just talk us through what data we could see coming out of your atopic portfolio this year and next year and how this could shape your development program and timeline for these? Thank you.

Okay, so I'll go backwards and then I'll ask Denise to talk a little bit about the anecdote which we have quite a few. But -- so on the atopic dermatitis, we have a efficacy study, pilot efficacy study, we haven't disclosed the design of that study, I'd like to have more than once, it depends on which one finishes first but it will readout on one or more efficacy parameters. On the economics that's one of the strengths of our product because right now most veterinarians script out the human generic Mirataz, so they don’t make much money of any on that. With Mirataz assuming 2S markup which is standard they would make about $15 for each course of Mirataz assuming 14 days. However we do know that currently cats are receiving Mirataz -- mirtazapine not Mirataz but oral mirtazapine about half of them are getting it chronically, now we can't promote our drug for longer than two weeks. So all we can say is that our drug is labeled for two weeks and any chronic uses obviously off-label and greatly on top of that. And Denise you want to talk a little bit about the --

Sure. I mean some of the -- I mean anecdotally we knew that there was a lot of excitement around this product. I mean as recently as when we were at the American College of Veterinary Internal Medicine we had over 300 attendees at a 6:30 AM breakfast about Mirataz, so we knew going into the launch but there was enthusiasm for this transdermal product. I should point out we've only been shipping for 20 working days, I mean and I think that's a really important point, it's been one month from July 9th till today and it's a two week course of treatment. So our veterinarians are certainly talking in a peer-to-peer fashion we've been hearing positive feedback about it. One thing I can tell you that I think it's been encouraging and again it's early to take this with a grain of salt but we are seeing a number of veterinarians who ordered a single tube transitioning to ordering a case. So we obviously take that as a positive sign and again we're very happy with our penetration and early update but by all accounts, the news has been quite encouraging and certainly for Q3 we will have a lot more to report out.

Denise, maybe one follow-up on that, are you doing any sampling?

Sampling?

Yes.

We are doing some sampling, we're being thoughtful about it, so it's a pretty tight program but we are doing some sampling, yes.

Thank you. And our next question comes from Ben Haynor from Alliance Global Partners. Your line is open.

Hey just thinking about the atopic dermatitis programs, I guess, I also wondered you've set a panel that readout timelines but when would do you expect kind of IL-17 the SINK molecule those programs or those molecules to see results?

So we haven’t made out the timeline for those. The next molecule will be the IL-4/13 SINK molecule and then IL-17 will be after that, we are sequencing them just because we are small company and we are resource constrained but they are only a few months behind IL-31. So I think that of course at the end of the IL-31 study we will probably be able to put out more definite timeline.

Okay that makes sense and then on IL-31, I think the affinity of yours versus the affinity -- the competing offering is a bit higher, can you talk a little bit about that?

Sure. So Denise and I have both launched a lot of products and are very familiar with launching a competitive market and really you do want a differentiated product, our IL-31 one of this differentiation is that it appears to have higher affinity which means it binds more tightly to the target, now that should translate into better efficacy, but we don't know yet because that’s based on in vitro data, so we don't have any clinical data yet but we're hopeful that it may actually have higher efficacy which would be a major point of differentiation.

And correct me if I'm wrong excuse me, but if the affinity is higher you have better efficacy, wouldn't that mean lower manufacturing costs and if so would you think about adding potentially some of the other molecules whether it's SINK or IL-17 or whatever to the same drug and marketing it that way or how would one think about that?

Ben, you should come and work for our R&D organization. So you're right, higher affinity is a critical parameter for any antibody and it can lead to lot of advantages, it could mean higher efficacy and/or long -- lower doses and/or potentially less frequent dosing interval because you can allow it to get to lower serum level. Now those are -- there's some trade-offs right, you could get low cost of goods at the same efficacy by using a lower dose for example, so that all depends on how the clinical results turn out, so we don't want to speculate at this point. But the other point about lowering cost of goods, that is critical and it is a related factor in competitiveness of the molecule and that's why we have a large scale commercial plant that we’re building and that's why we're looking at other ways to lower our manufacturing cost. Our goal is to be the leader in terms of manufacturing cost and ultimately sure I mean we have certainly have looked at additional indications combination therapy, so there are a world of possibilities beyond that first indication.

Okay, that’s very helpful and thank you for the job offer I guess. But lastly from me, you talked in the prepared remarks about products that you see that haven't been disclosed that could be more successful than Mirataz. I assume that's only small molecule drugs that you're referring to, is that correct?

In a particular sentence I would refer to small molecules but certainly many of the biologics have tremendous potential as well, of course.

Okay, well great. Well thank you very much guys and I’ll jump back in queue.

Thanks, Ben.

Thank you. And our next question comes from Andrew D'Silva from B. Riley FBR. Your line is open.

Hi good afternoon, thanks for taking my questions. Just a few quick ones here. So just I called several dozen that offices recently and they seem still be using items from compounding lease are these -- do you have any inside view of them taken out off the shelf at some point or how should we view non-FDA approved offerings, when thinking about just the general competitive landscape?

Yes, absolutely, that's a great question. So we are working with some home delivery distributors who have compounding pharmacy capability, who have agreed to completely take it off formulary above and beyond that, the major compounding pharmacies have agreed to take it off their shelves as well. So and this I really want to highlight, I mean this is a testament again to the caliber of the team, I mean they have the foresight to map this out, they've been working diligently and we plan to be very aggressive when it comes to compounding above and beyond our collegial relationship. So we feel pretty good about it, so I think it's just a matter of the distributors being able to get the product to the end user and once they have it then I think compounding will likely disappear.

Absolutely. There are two points that is right, one is taking action against compounding pharmacies or negotiating with them, it turns out they’re backing off pretty quickly and the other party is just having a better product which we do at the. The reason that the compounding pharmacies have not had much luck is so far I mean they have some markets but not a very large share of the market is because they simply don't work very well. So we have an FDA product that is absorbed very well has proven efficacy and we don’t give the compounded formulations will be a critical competitor to Mirataz.

Okay, perfect. Thank you for that info. And then on the Rev Rec side, so just let me completely understand this your distributors have 90 days to return and then you start recognizing revenue correct and then if that is correct, is it an ongoing 90-day lag perpetually or is the first 90-days the only time that happens and if that is the case should I assume that the first 90-day Rev Rec policies fall -- for example if the first 90-day Rev Rec policy falls at the beginning of Q4 would then hypothetically Q4 get a double benefit so naturally you'll get the initial stocking order in Q4 and then follow-on sales from distributors also in Q4? Or am I thinking about that wrong?

Well the 90-day return it only applies to initial stocking orders, so the minute the distributor place a reorder then it doesn't apply anymore. So in the event that in your example is in Q3 none of the distributors place a reorder then we will have to wait until Q4 to recognize the revenue, so it will be sort of a double effective if you will.

And Andy, this was part of what I was referencing in my prepared remarks. I mean we really tried to take a smart approach to this, I mean we gave -- we we’re very judicious about our stocking orders and part of that is of course obviously to get reorders and be able to recognize revenue. But the another reason for doing that is so even internally, we don't want a false sense of launch where we're putting in these big initial stocking orders that we have to work through because then we can't react, we don't really know what the real world looks like. So I think I know the team has done a very effective job of that, so hopefully our future reporting will start to very quickly reflect real world activity.

Okay, all right. So maybe like a one-time kind of potential lumpy quarter. And then maybe things smooth out to a more normalized growth rate going forward after that?

We shall see. It's hard to know but we'll try to put as much color around it as we can to explain where we are at any given time.

Okay, perfect. And then just educate me a little bit on this, so Mirataz did have an ADUFA date and then Zimeta also had like quasi-ADUFA date originally like April or May, so they’re not kind of giving you a new date at all with the FDA with Zimeta or I mean so what’s the I guess the logic with that it seems like just leaving you out to dry and that's not enough but it seems a little bit wrong I'm looking at it from outside.

Well the -- so the history is we yes we did have an ADUFA date for the manufacturing technical section, our pre-approval inspection was scheduled a bit outside of that ADUFA date. However prior to the ADUFA date, CBM also did an inspection of our API provider and as we disclosed they had some findings, so that sort of relieved the timing of the pre-approval inspection. So what happens now is as I said our API provider has responded to all of the questions, our product manufacturer had their inspection in July which we believe went successfully. So once those are resolved and we have to reactivate our technical section, our understanding from FDA and take the food of grain of salt is that they will give it a priority review knowing the history with this products but that will be -- that remains to be same. So some of the challenge for us certainly in reporting to you is that the timelines are out of our hands at this moment. But we do have open dialogue with CBM and we're doing as much as we can from our end but we're hopeful and we're encouraged for the future.

Okay. We can only do what you do and just last --

That's a problem.

Yes, now I understand, I completely understand. And just the last question just more of your viewpoint from a federal landscape, Elanco Animal health spinout sounds interesting from a market standpoint, what are your thoughts on that for your company and then just what does it mean in general?

So we think this is a great development for the entire sector not just us but the entire sector for several reasons. One is that we know when lot of us spun out and it a lot more investor attention to this field now lot of investors who were not familiar with the animal health sector did their homework on it because they had to decide whether to keep the desired shares and many investors once they look into the animal health sector become very excited about it because the economics is extremely attractive right, especially the companion animal sector and as we said before for one-hundred the cost of developing human drug we get a drug that sells one-tenth or often more than one-tenth compared to human drug. So we think number one it will draw more investors into the sector. Number two when you have a veterinary company does under the umbrella of a human pharma company, they often are not able to fully spread their wings because you're competing against human project and we seem goes [ph] to very, very well after the spin-off. We think same thing will happen with Elanco, so I think that will energize the entire sector but will have certainly more competition but also more partners and we look forward to the spin-off.

All right, well great, thank you so much for the questions. Good luck with the launch and everything and I will hop back in queue.

Thank you.

Thank you. And our next question comes from Swayampakula Ramakanth from H.C. Wainwright. Your line is open.

Thank you. Good afternoon Richard and Denise and Denise when in your opening remarks you said there are about 100 clinics per day is kind of the order rate that you’re seeing just kind of certainly exciting, but what should we think about this in the sense does this kind of match your internal target rate or is this better and also when we think about as correct should we think about as correct normally -- correct size normally being just one tube or it comes in different flavors?

Sure. So thanks RK. I think again I without sounding like I'm always bragging about our team, I -- we’ve done some really great market research, some deep dive market research, so the 100 clinics per day unique clinics per day is consistent with our expectations and I think that it remains to be seen what the ultimate trajectory will be as I said it's so early, we've only been shipping for 20 days, so we hope to have better averages and also different metrics that we can give to you. But I think it's a testament to the marketing that we've done and also prior to launching, our scientific communications and we know that clinicians were waiting for this product and so it's very consistent with what we expected inside. As far as scripts are concerned, it depends there are some veterinarians who are quite familiar with mirtazapine as the active ingredient and they’re very excited and they order a case but a lot of veterinarians will try a tube and as I said earlier we've been very encouraged by seeing those who have tried a tube many of them order a case at hospitals the same way ordering larger orders, the next time they order. So I think it's very common to test something out that's brand new to the market and we're encouraged by what we're seeing.

Great.

There is only one presentation?

Oh, there is only one presentation when you had asked about sort of one flavor yes there's only one side.

No, no when I say flavor what I meant was is it like case versus tube, sorry.

Okay. So again no flavor obviously you can check during the year.

We don’t know about CAT. So talking about the VCA catalogue publication, so this obviously is an interesting thing for us to hear especially this early in the launch but what does that mean, does that mean normally when one comes in it's a herd mentality and if that is true what percent of market does VCA and such entities make up for the potential accessible market for Mirataz?

So that's a tough question to answer RK. I mean once it goes into their product catalogue and any of the hospitals are able to order it, I'd say probably there is certainly communication between the hospitals of course so I don't know if it's a herd mentality so much but those are 750 hospitals and I appreciate you pointing out that it is very, very quick, we did a lot of pre-work with our veterinarians and their veterinarian to get this into their product catalogue leading up to the approval and to the launch. So thank you for recognizing that.

Okay. And then moving on to Zimeta, and Zimeta IV launch that could happen so these two launches are two different animals if I can use that word and does it mean I would think that you would require different set of resources for that, how easy would that be and especially when you are doing two launches and you certainly want to do the best job you can, how much of a stretch is it are people completely equipped and ready to do both at the same time?

Yes. So we have already hired our Head of Equine Sales and we do have some specialists on board who are supporting the Mirataz launch as we speak, all the while supporting Equine activity, so the Equine market is relatively small and I will tell you, I will tell you something anecdotally. I had a meeting with a very prominent Equine veterinarian just the day before yesterday and he said in all my years, I have never seen a situation where we all know the name KindredBio and you don't have a dime product on the market. So I think again that speaks to our Equine, we have a lot of equestrians and equine veterinarians on the team; they’re very active in the community. So as I said previously we will do this extremely judiciously, we will have three to five reps and we will partner with our distributors many of whom have a discrete Equine sales force. So we're very excited, we're very, very well prepared for the Equine launch and it will not distract from the Mirataz activities one iota.

Okay, great. Just two more questions. One -- the first one being epoCat, so when would we see any data from this program and what kind of a timeline should we expect for a launch for this product?

So what we have said is that we expect to see the data from the pilot study end of this year or early next year and we're on track for that. We have not given out a timeline for the ultimate approval mostly because once we have the pilot data, we'll need to talk to the FDA and depending on the agreement we come to a decision with regard to design of the study, that will drive the program. So we'll probably be able to put out a definitive timeline after we talk to the FDA which will probably be sometime early next year.

Okay, Richard. So this last question is for you. At one point you were talking to us about how you would like to add additional things to the bag to make it look interesting for the sales force in addition to the -- to Mirataz and Zimeta and you're planning on some VD activities, so where are you in that process and can you kind of highlight to us what sort of entity -- what sort of products would you be looking for as you do the VD work?

Yes, so we are continuing discussions with several companies about products but two points. First is right now we’re focused on Mirataz launch, so I think we'll be pretty busy for several months. And number two, we want to be very, very selective about the product and the price we pay. So we have some possibilities but if you can get yourself into trouble if you overpay for an asset or acquire an asset that pans out to be below expectations. So we want to be absolutely sure it's the right thing but we are fully engaged on that front.

Thank you. Thank you both for taking all my questions and good luck.

Thank you.

Thank you.

Thank you. And our next question comes from David Westenberg from C.L. King. Your line is open.

Hi, thanks for taking the question. Just on Mirataz, is there a direct-to-consumer market potential now saying that I realize that usually when you have a first to market drugs, you don't necessarily need to do that but I'm just thinking about the market size, the number of cats in the middle realization rates of cats being so low, is this -- did this thought across your mind?

Sure it most definitely crossed our mind; we are very much focused on the veterinarians first on education outreach to the veterinarians. With that being said, we certainly do and have been working on marketing plans for direct to owner but really this is driven by the veterinarian it's largely distributed out of the veterinary clinic, so that's most definitely our priority. Now that being said, David, I will tell you we were at CatCon last weekend in Pasadena, California. So that was an owner event, so we certainly are paying attention to owners but very much focused on veterinarians at this point.

Got it, thank you. And just one clarity on the 100 clinics per day, is that the rate right now or is that the rate you've seen actually since launch?

In the 20 days since launch, right now in the launch almost the same timeframe but yes I mean obviously if you don't and it will be lumpy I mean even internally as we scrub our data, we have to look at and say okay is everyone on board, all the distributors what does this represent? So it's very, very, very early but I can tell you that this does match our expectations and we're very pleased with these numbers. So we don't know if that will be steady state but we will certainly keep you posted as we have more data in Q3.

Got it. And just one last quick one, I believe VCA is the only one under the Mars umbrella does a formula I could be wrong n that but if I'm wrong on that, does -- is there an opportunity to maybe highlight the conversations with VCA to maybe Stanfield or BluePearl or the others, if they do happen it's also do medicine that way out.

Absolutely. Yes those discussions are most definitely ongoing and we will shortly have updates for you on that.

Thank you.

Some of you may not know, it can take over a year to get on VCA into VCA product catalogue. That's probably a year -- it's probably what most companies would plan on.

Absolutely yes, so and congrats that is a big stone -- stepping stone. Not even a stepping stone a big leap. Thank you very much for taking questions.

Thank you, thanks a lot.

Thank you. Our next question comes from Brooks O'Neil from Lake Street Capital. Your line is open.

Good afternoon, thanks for taking my question. I just wanted to focus a little bit on atopic dermatitis, my sense is obviously when the company got started you had a candidate for that condition. Obviously the market has developed into a huge market and you face formidable competition, so I'm curious how you think about entering that market and why you believe you could be successful in going back into that area?

Yes. So that is a perfect question so I think it really highlights how we think about commercial opportunity. We had kind of it called Addedkin [ph] development and we voluntarily stopped development of that program when it became apparent that Apoquel was a very good drug. So a couple takeaways from that is number one we understand commercial marketplace, we understand competitive markets and we will not develop a drug that we don't believe will be differentiated from the competition. Number two is I think it showed that we're as management team not afraid to take difficult decisions, thus we got a lot of negative feedback on that from investors because we took a hit on our stock price at the time. But we knew that we did not want to continue to invest in a product that was not going to be or at least have a good shot at becoming a market leader. And we knew that we had antibodies early at the time. We had antibodies that could be as good or better than Apoquel, so we decided to post in our resources and use that to develop products that were going to be potentially superior. So where we are now is that the market has been proven to be even larger than we thought. And there are two good competitors on the market. However if you look at what has happened on the human side in the biologics market such as rheumatoid arthritis, multiple sclerosis, psoriasis which are large markets, there are a few takeaways. First is that number one antibodies always do better than small molecules you see these immune mediated diseases or they respond to both small molecules and biologic but antibodies tends to have similar efficacy as small molecules but almost always quite safer. So biologics usually take a few. The second is that in a large market there are multiple successful biologics because different patients respond to different molecules. Number three the first antibodies to market is almost never, the best one and the market leader usually is one that comes later that are better. So what we have internally is a molecule, a second generation IL-31 there are some differences, we think that some of the differentiating factors are number one that it is fully caninized, second one is that it appears to have higher affinity, and then there are few other attributes we think will make it very successful. So that's a long way of sort of saying that we think we have potentially superior molecule and that our philosophy is always to develop a molecule that’s going to be very, very competitive in the marketplace.

That's great, that's very helpful, Richard. I appreciate all that maybe Denise could you take a stab at talking about how you could be successful competing against the big competitors like ours in that market from your size and positioning?

Sure, yes, I think it's really depends on the product attributes as Richard has said I mean if there is a strong differentiation then I think that's very helpful. We will be very smart as an organization, I mean if we feel that we can be competitive against another company that has a larger sales force and it’s appropriate then we will consider that. We will also consider partnering in order to have a largest sales force, so we will do whatever is best for the company, our ego is not hide up in launching it ourselves but it would really will depend on the product candidates, if we end up with a suite of candidate and really also how Mirataz does as a product, what size of a sales force are we able to grow judiciously, so there is a lot of moving parts and believe me we’ll be talking and making a very thoughtful decision about that.

That’s great. Could you guys just give us a broad sense of the timeline for the atopic dermatitis products, I'm guessing that it’s out several years but what are you thinking at this point in terms of how that timeline might look?

So I think we’ve said in general our programs we expect to last somewhere between five to eight years and the atopic dermatitis products have been in development for somewhere between four to five years at this point. So I think that will give you a rough idea. The reason we haven’t put on a different timeline once again is because we are still finalizing the study design we’re in discussions with the regulatory agency, so until we have that we won’t have a firm timeline.

Perfect, thank you very much and congratulations on your progress.

Thank you.

Thank you.

Thank you. [Operator Instructions]. And our next question comes from Jay August [ph] from Aegis Capital. Your line is open.

Good afternoon and congratulations on a wonderful second quarter here. I just had a couple of quick questions, and the first one is could you comment on the potential approval overseas for the Mirataz?

Sure. Yes thanks for asking about that. So as you know we submitted our product at the end of -- our application rather at the end of last year, so we have received initial feedbacks from the regulatory agency and we are addressing those questions now, we anticipate from the time we submitted about a year depending on whether or not we have to generate any new data. So it’s an iterative process but we’re happy to see the questions we have received and we are addressing those as we speak.

Okay. And the other question was there has been some numbers thrown around about the potential market for Mirataz in the United States are you able to comment on that?

Not at this time, yes I think it would be inappropriate for us to -- it's a brand new product, first-in-class to market. So we really need to get a few quarters under our belt before we’ll start giving any guidance.

Thank you. And I'm showing no further questions from our phone lines. I would now like to turn the conference back over to Dr. Chin for any closing remarks.

Thank you, Operator. As I said the second quarter has been an exceptional one for KindredBio and I'd like to thank our shareholders for your support as we continue to execute on the launch and develop our promising pipeline.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may all disconnect. Have a wonderful day.