Good morning, and welcome to the Zevra Therapeutics Second Quarter 2023 Corporate and Financial Results Conference Call. [Operator Instructions] Please be advised that today's call is being recorded. I will now turn the call over to Nichol Ochsner, Zevra Therapeutics Vice President, Investor Relations and Corporate Communications. Thank you. You may begin.

Good morning, and thank you for joining us today to review Zevra Therapeutics progress in the second quarter of 2023, outlining our clinical progress, 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 webcast slides and the press release both of which were released this morning and are available in the Investors Section of Zevra's website. These documents provide comprehensive insights into our results for this quarter. As we move forward with the presentation, it is important to highlight that today's discussions will include forward-looking statements. These encompass various topics, including updates on clinical development, and regulatory journey of arimoclomol, the achievements and revenue milestones of AZSTARYS, and our French Early Access Program or EAP program. The achievement of our pipeline programs, time lines for clinical trial enrollment, initiation, completion and data reporting from our clinical trials. However, 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 those projections made. For a comprehensive understanding of these factors, please refer to the Risk Factors section of 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 Christal Mickle, our Co-Founder, Chief Development Officer and interim Chief Executive Officer. LaDuane Clifton, our Chief Financial Officer; and Josh Schafer, our Chief Commercial Officer and Executive Vice President of Business Development. Now I'd like to turn the call over to Christal Mickle.

Thank you, Nichol. Good morning, and thank you all for joining us today. The year-to-date has been a dynamic time for Zevra and second quarter was quite productive for our team. We're very encouraged by the continued advancement of our rare disease pipeline programs towards multiple near-term clinical and regulatory milestones as well as by the progress that we are making to add in-house commercial capabilities needed to bring therapies to market directly. In addition, we continue to enhance our patient advocacy efforts, which include ongoing support of our early access programs for arimoclomol. Nichol, can you advance to the next slide, please? Our balance sheet remains strong, and we believe that we have made solid progress towards our strategic mission of delivering much-needed innovative therapy to people with rare diseases. An important update today is regarding our progress with the resubmission of the NDA for arimoclomol. Our product candidate for the treatment of Niemann-Pick Disease Type C or NPC. Earlier this month, we participated in a pre-submission meeting with the FDA, which focused on a preview of the complete package that we anticipate resubmitting for review. The meeting was productive and collaborative, and we gain valuable insight that we believe will help us to complete the package and give us our best chance for success. Our strategy for resubmission remains unchanged, and we are targeting resubmission by the end of this year. Regarding the development program for KP1077, our product candidate intended for the treatment of IH and narcolepsy. Our Phase II trial in IH is advancing with interim data expected by the end of this quarter. And we look forward to sharing that information as soon as it's available. Based on the pace of enrollment, top line results for the Phase II trial are expected to be available…

Thanks, Christal, and good morning, everyone. As Christal mentioned, we are pleased to announce that AZSTARYS has reached a key milestone in the second quarter, surpassing $25 million in annual net sales for the first time. This achievement triggered a $5 million milestone payment to Zevra, which has also been received after quarter end in August 2023. This underscores the growing demand for this important therapy within the ADHD treatment landscape. We also earned royalties on net sales of $800,000 for the second quarter, and we are encouraged to see AZSTARYS continuing to attain new record weekly prescription counts. With the momentum that AZSTARYS is exhibiting through second quarter, the trend supports the potential to earn a second net sales milestone by the end of 2023. We also anticipate that the quarterly royalties on net sales will continue to grow over the next several years. Beyond the first and second net sales milestones, there are several more, we believe are attainable in the near future bringing the potential to drive increased value for our shareholders. For Q2 2023, net revenue was $8.5 million, which was driven by the $5.8 million from AZSTARYS including the net sales milestone and royalties earned in the second quarter and $2.8 million in reimbursements from the French Early Access Program for arimoclomol. We ended with a net loss for Q2 of 2023, which was $5.1 million or $0.15 per basic and diluted share, driven primarily by R&D expenses of $7.4 million and G&A expenses of $7 million offset in part by the $8.5 million in revenue and $1.5 million in other income. R&D expenses reflect the ongoing investments in the KP1077 clinical program as well as our ongoing work to prepare the arimoclomol NDA for resubmission to the FDA. G&A expenses reflect the investments we're…

[Operator Instructions] We will take our first question from Louise Chen with Cantor.

This is Harvey on for Louise from Cantor. My first question is on a potential second net sales milestone you might achieve in 2023. How big is this potential milestone. Secondly, what are the expectations heading into the interim Phase II IH readout, what caused it to be a home run scenario?

Well, thanks for your question, and I'll take the first one, Christal. The second milestone, we've not been able to disclose its magnitude or the sales threshold that we have to achieve in order to earn that milestone, but I think it's safe to say that it will be larger than the one we just earned in Q2, which was $5 million. So I'm a bit limited there, but I think that we can look forward to a continued sort of growth not only in net sales, but also in royalties, and the size of the milestones. Christal?

Yes. Great. And as far as your question regarding the interim data, as you may remember, the point of the interim data is really to inform us on the Phase III trial moving forward. And so what we're really interested in is looking at the multiple dosings that we're looking at. So if you remember, we're looking at either a once dosing and the evening prior to going to sleep or twice dosing once in the evening and before waking. So looking at that and then also looking at the doses that are being used and seeing that those doses are higher than, than what is being used for other stimulants that are out there and making sure that we're in the right range for us as we move forward.

And our next question comes from Oren Livnat with H.C. Wainwright.

Congrats on the AZSTARYS progress. But I wanted to focus on arimoclomol. I just want to make sure I'm hearing correctly, not misinterpreting. I think you said in terms of how to deal with missing data and certain patient events. You said you're going to move forward with the FDA preferred primary analysis. I can't remember if that's like a change from your prior expectations or ambitions. I know there was a couple of different [indiscernible] you had highlighted earlier when you did the deal, sort of like a rescored without cognition, some swallowing changes versus sort of an FDA analysis, which I think originally had a different p-value. And so can you just help us understand what compromises were made? What changes, if any, were there? And I have a follow-up.

Appreciate the question. So no, we actually are continuing with our strategy as we're moving forward with the resubmission. So going with the FDA recommended analysis is not something that is new. And then when you -- we're talking about the validation and those other points, those are also things that are -- that will be included in the NDA. So those are all still moving ahead as we had originally planned to do.

Okay. And so the timing change, which is not material necessarily, but I'm just curious if that's just more calibrating after your meeting with the FDA? Or is there a new stuff you've been working on, whether it's nonclinical stuff in animals or just analysis or reanalysis of the data?

So it really boils down to -- we had our FDA meeting very recently, and so it's a refinement of making sure that we present the data in a way that the FDA would like to see it. And so with that, there are a few additional analyses. There's refinement in the way that we're presenting our arguments and our data. So even though what we're planning to present hasn't changed, there is some nuances there that we are going to look at. And so that pushes that a little bit out from that end of Q3 that we had originally talked about.

Okay. And I guess to characterize this meeting as, I think, collaborative or productive or both, which is great. I think in the past, maybe -- I don't know if it's in response to questions or if you volunteered upfront, you talked about, if necessary, you could take, I guess, less collaborative or more aggressive approach with dispute resolution and things like that, if necessary, is -- am I detecting a change in tone here because of that was mentioned or in the deck, I don't think that you feel actually more optimistic now, maybe after your meeting with the FDA, then than you did before and that you don't think you're going to have to pursue anything like that? And do you expect to request an ADCOM sort of upfront?

So to answer your first question, those options are always still available and still on the table. We do -- we were hopeful with this meeting that we had because it was a collaborative meeting, we were appreciative of the tone that the FDA had. And so they do seem to be working with us to get this resubmission in. And then as far as -- what was your second point there or your last point?

Whether you expect, I guess, upfront to request an FDA, an ADCOM meeting...

So that's an interesting question. I don't think we will as for upfront. We welcome it if it comes from the FDA, and that's still a consideration if the FDA does not ask for it that we may ask for it ourselves, but it's not something that we'll ask for immediately upon resubmission.

Okay. And if I just may look a little further down the line, assuming this all goes well. Any progress that [indiscernible] talking about on remarkable life cycle management. I think there was some hopes to improve dosing, get some more additional IP around the project? Anything to report there?

So right now, we are focused on approval. But those are always things that we will look for as we move forward.

[Operator Instructions] Our next question comes from Sumant Kulkarni with Canaccord.

I have a couple. So on the lease commitment of the arimoclomol NDA, you mentioned the productive and collaborative process with the FDA, which portion of the 3 parts of the Complete Response Letter and your ongoing response. Would you say that the majority of your last interaction with the FDA was focused on? And then I have a follow-up.

So we really -- we presented everything because we did treat this as a pre-submission meeting, but we have -- a large part of it was also focused on the confirmatory evidence that the FDA hasn't seen in the past.

Got it. And then in the last meeting with the FDA, did the agency state specifically that no additional clinical data would be required, or did the FDA making suggestions that additional clinical data that may be required but left to the discussion of Zevra on whether to run those are not prior to these submission?

There was no discussion about additional clinical data being needed.

And our next question comes from Jonathan Aschoff with ROTH MKM.

I was curious, so that was just the [$670,000] booking for AZSTARYS revenue versus [$630] in the prior quarter. I was just kind of curious if that math is correct, because you said arimoclomol was $2.8 million, $5 million milestone, just leave [$670]. Why was that kind of flat like that after the growth in the last couple of quarters?

No. So it was not flat. So I guess when I read through all the components of revenue, when you -- if you add it all together, there is the cost of revenue of [$677], which I guess if you look at the press release in the detail. So to be clear, we had $800,000 in net sales royalties from AZSTARYS. So it was not flat.

Okay. So the net arimoclomol is not $2.8 million. It's a little less or it is $2.8 million, and it kind of can't be $2.8 million.

There is a cost of revenue associated with the milestone. If you remember, we pay a 10% royalty to request it. And so we had to recognize a 10% reduction based on that. That's the difference that you're thinking of.

Okay. And I was curious, in your response to the first question, you were talking about the interim IH data to inform a Phase III trial. But I was thinking, why do you even care about that, the final data is a few months away, isn't that vastly more important and informative in the Phase III than what comes at the end of this quarter?

So actually, no. The whole point of the Phase II trial was to inform the Phase III trial. It's ultimately, this prodrug is a stimulant. And so we know that there's going to be an effect. And so what we wanted to get out of this trial is really those nuances that we'll need to understand as we're preparing for the Phase III trial and preparing the protocol for the Phase III trial. So this -- getting this interim data is going to allow us to kind of refine that Phase III trial move forward with FDA meetings and further preparations for those -- for the Phase III trial while we finish up to Phase II.

Okay. And lastly, I guess it's fair to assume maybe you can say this is your AZSTARYS milestone that they will substantially decrease as a percentage of the sales figure that triggers that. Here, it's a 20% ratio, but that should substantially decrease as we go forward. Is that at least fair to say?

I haven't made that statement. So no, I wouldn't say that.

So they might actually stay fairly in line with that 20% payout kind of ratio?

I mean I think that would be a great outcome as it did. And I'd say this just -- I would just remind you that when we went back and had a chance to renegotiate these milestones back in April of '21. We really were looking for a way to pull milestones forward, if you will. And so those ratios are probably a little bit different than what you might think are typical of a market license. So the fact that the first few are in this range I think, speaks to some of those amendments we were able to get agreed to back in that time frame.

Yes. I mean to have $25 million trigger sales milestone at any time is a pleasant surprise for sure. So you guys really did a good job on the front end of that.

And this does conclude the Q&A portion of today's call. I would now like to turn the call back over to Christal Mickle for any additional or closing remarks.

Great. Thank you very much. We're excited about our progress in the first half of 2023 and are looking ahead to continue our momentum. As we look forward to the second half and into 2024, we're focused on the following 3 top priorities: First, to resubmit the arimoclomol NDA to the FDA and strengthened key functions and capabilities to support a successful launch of approved. Second, to complete the Phase II trial of idiopathic hypersomnia and prepare to advance KP1077 into a Phase III trial sometime next year. And third, to continue our work to expand our KP1077 program into narcolepsy. Corporate development also remains a priority as we actively engage in conversations to potentially acquire new pipeline assets that would be complementary to our portfolio, and that could benefit from the potential application of our prodrug technology. We're building something really special here at Zevra. We have a legacy of drug development success upon which we are expanding our capabilities by adding an innovative patient-first commercial team, which we believe has the potential to drive meaningful value for our shareholders. But not only that, we're fully committed to our mission of bringing much needed therapies to people living with rare disease. Patients, caregivers, and all of those who are supporting the rare disease communities that we serve are at the forefront of everything that we do. I want to thank our shareholders for your continuing support of our efforts. Additionally, I want to give a special thanks to our employees for their energy, enthusiasm and relentless commitment to make Zevra's success. We're excited about the prospects, opportunities and potential for success in front of us. Thank you for joining us today, and we look forward to speaking with you in the future.

This concludes today's Zevra Therapeutics second quarter 2023 earnings call and webcast. You may disconnect your line at this time, and have a wonderful day.