Richard Chin - President, Chief Executive Officer, Director Denise Bevers - Chief Operating Officer, Corporate Secretary.

Alex Arfaei - BMO Capital Markets Brendon Mason - Guggenheim Securities Seamus Fernandez - Leerink Alan Leong - BioWatchNews.

Welcome to the third quarter 2014 financial results conference call and webcast for Kindred Biosciences. At this time, all participants have been placed on a listen-only mode and the floor will e open for your questions following the presentation. [Operator Instructions].

It is now my pleasure to turn the floor over to Kindred Bio's CEO and President, Richard Chin. Dr. Chin, please proceed..

Thank you, operator. Good afternoon and welcome to our 2014 third quarter earnings call. I am joined today by our COO, Denise Bevers. It's a pleasure to host all of you today.

Before I begin, I should note that our remarks today will include forward-looking statement and that actual results could differ materially from those projected or implied in our forward-looking statements. For a description of important factors that cause actual results to differ.

I refer you to the forward-looking statements in today's press release and the note on forward-looking statements in our SEC filings. I will start this call with a corporate update. Then Denise will give you an update on the status of our clinical program. I will then report on the 2014 third quarter financial highlights.

First of all, we are very pleased to announce that we have recently received the approval of Phase 1 CMC section of the AtoKin NADA. This is an important milestone and indicates that the FDA has fully reviewed the NADA submission for AtoKin drug substance or API and has approved it.

And as you may note, the CMC section is often the riskiest part of the NADA submission and this is an excellent beginning to our rolling NADA puts us ahead of schedule on our submission.

Second, I am pleased to note that in addition to making excellent progress on our lead programs, namely AtoKin, our selective histamine antagonist for dogs with atopic dermatitis, and SentiKin, a KCNQ potassium channel agonist for postoperative pain in dogs, our team has been attempting other programs rapidly.

In fact, we are at the clinical stage for six additional indications or drug candidates, some of which we have not yet disclosed and anticipate several more in the next two quarters. We believe that we now have one of the deepest and highest quality companion animal pipeline in industry and it continues to grow.

We are on track to readout pivotal data for our lead programs next year as we outlined in our 8-K filing several weeks ago. We also expect readout of multiple pilot studies in the next year and by pilot studies what we mean are well controlled, randomized Phase 2 studies. Third, we are continuing to make very good progress on business development.

We have ongoing discussions regarding several potential acquisitions and although obviously we cannot predict the outcome at this point, though in some were very well positioned. We have a full pipeline that's progressing rapidly. We have an excellent team that continues to execute with precision. We are well-funded with over $100 million in cash.

We have a finely tuned and efficient development organization that allows us to develop drugs for $3 million to $5 million each. We are in a field that's growing rapidly with only a handful of other biotech competitors and we will have multiple data readouts, both pilot and pivotal, in the next 12 months.

We believe we are well poised for success, both in the near term and the long term. So we continue to be very excited about Kindred Bio, including the team, the pipeline we are advancing and most importantly the great benefit these [indiscernible] bring to our animal friends in need.

Now I would like to turn the call over to Denise who will update you on our clinical program..

Thank you, Richard. We continue to have very strong enrollment in our AtoKin and SentiKin program. For AtoKin, as Richard mentioned, we submitted Phase 1 of our CMC Technical Section to the NADA and recently received an acceptance letter from the center for Veterinary Medicine.

This acceptance further validates our business model of repurposing a drug would de-risk CMC. We are pleased to say that we are on track for data readout next year for both AtoKin and SentiKin.

Fir SentiKin, we have announced that in addition to postoperative pain in dogs, we are also pursuing an indication of postoperative pain in horses as well as osteoarthritis in dogs. This is exciting because this drug has the potential to become a significant franchise for Kindred Bio.

In addition to AtoKin and SentiKin program, we have advanced several other programs in our portfolio. We are conducting a pilot study of SentiKin in cats for postoperative pain and have initiated the pilot study of KIND-012 for fever in horses.

We are also initiating a pilot study of KIND-010 for inappetence in cats and we plan to initiate a pilot study of KIND-011 for metabolic syndrome in horses as well. If the pilot studies are positive, we plan to initiate pivotal studies next year.

I would remind you that the timeline between initiation of a pilot study and the completion of a pivotal study for Kindred Bio could be a short as 12 to 18 months in many instances.

On the biologics front, we continue to make significant progress on our erythropoietin program in cats, our immune checkpoint inhibitor program for dogs as well as other programs. It is important to reiterate that we take a very careful and judicious approach to our portfolio.

And this is to maximize the probability of success by selecting and retaining only the most promising candidates. We have worked very hard to advance our pipeline by initiating and executing programs. We continue to build our portfolio and look forward to updating the marketplace on our achievements.

With that, I will turn it back over to Richard to review the financials..

Thank you, Denise. Research and development expenses for the three and nine-months ended September 30, 2014, were $3.8 million and $13.9 million, respectively, including stock-based compensation expenses of $376,000 and $1.1 million, respectively.

This compares to research and development expenses of $1 million and $1.4 million for the three and nine-months ended September 30, 2013, respectively. R&D expenses were higher due to a significant increase in activity related primarily to the SentiKin, CereKin and Anakin program, as well as increase in headcount and related expenses.

General and administrative expenses for the three and nine-months ended September 30, 2014, were $2.3 million and $6.5 million, respectively, including stock-based compensation expenses of $889,000 and $2.5 million, respectively.

This compares to G&A expenses of $259,000 and $438,000 for the three and nine-months ended September 30, 2013, respectively.

G&A expenses related primarily to salaries and related expenses, professional and consulting fees for legal, accounting and tax services, costs of being a public company, rent and other facilities costs and other general business services.

For the three months ended September 30, 2014 the company incurred a net loss of $6.1 million or $0.31 per basic and diluted share compared to a net loss for the three months ended September 30 2013 of $1.2 million or $0.40 per basic and diluted share.

For the nine-months ended September 30, 2014, the company incurred a net loss of $20.3 million or $1.10 per basic and diluted share compared to a net loss for the nine-months ended September 30, 2013 of $1.8 million or 61% per basic and diluted share.

The company had cash, cash equivalents and short-term investments of $106.4 million at September 30, 2014. Net cash used in operating activities for the nine-months ended September 30, 2014 was $16.8 million.

For the full year 2014, the company is reiterating previous guidance, expects operating expenses to be in the range of $25 million to $35 million, excluding the impact of stock-based compensation expense and the impact of acquisitions. The company expects stock-based compensation expense for 2014 to be approximately $4.5 million.

R&D expense is anticipated to increase for the foreseeable future as the company continues to increase headcount, commence pivotal studies and further develop its small molecule compounds and biologics development programs.

Due to the inherently unpredictable nature of its development, the company cannot reasonably estimate or predict the nature, specific time or estimated costs of the efforts that will be necessary to complete the development of its product candidates.

The company expects G&A expenses to increase in the following quarters as it executes plans to commercialize its product candidates, build its corporate infrastructure and incurs costs associated with being a public company. Operator, we are now ready for question..

[Operator Instructions]. Our first question comes from the line of Alex Arfaei of BMO Capital Markets. Your line is now open..

Hi, folks and thank you for taking the questions. You mentioned enrollment is expected to complete for AtoKin and SentiKin at some point.

I am just wondering if you could be a little bit more precise about when do you expect enrollment and should we be concerned that they haven't been completed so far? I would have imagined they would be completed fairly quickly? And could you be more specific about the exact timeline for the pivotal readouts? So is it a first half 2015 event or a second half 2015 event? And then regarding your pilot studies, can you just tell us for the readout next year, what's the order we can expect these are in? I think you mentioned KIND-012 may be, it sounded like it may be the first pilot study we might see, but if you could just provide us a little bit more, I guess, clarity on the timeline of drugs for these pilot programs? Thank you..

Sure. As we mentioned in our corporate presentation that we have filed an 8-K a few weeks ago. We have increased, we have made a decision to increase the size of our AtoKin and SentiKin studies to minimize any impact that unexpectedly high placebo rate. And as a result, the anticipated readout is mid next year based on the information so far.

But the enrollment has been going extraordinarily well. With regard to the pilot studies, all the studies that we mentioned, we expect readout in the first half of next year and at this point I think that's the most specific items we can give you..

Okay. Thank you, both..

Thank you. Our next question comes from the line of Louise Chen of Guggenheim Partners. Your line is now open..

Hi, it's actually Brendan, on for Louise.

I was just wondering if you could just talk a bit more to the market opportunity for AtoKin and SentiKin, especially peak sales opportunities around considering the news of programs being enrolled? And then additionally, if you could just perhaps give us some sort of timeline around the additional programs that have been initiated? Thank you..

Sure. So, for AtoKin and SentiKin, we have not put out revenue guidance. However what we can say is that most companion animal drugs reach peak sales of between $10 million to $100 million.

And we can also say that [indiscernible], which was recently approved, the projected sales are somewhere in the neighborhood of $50 million up to $100 million next year based on information we have. So we haven't given specific revenue guidance. We think both SentiKin and AtoKin have substantial potential revenue stream.

AtoKin probably will have a larger revenue stream than SentiKin, at least initially, because the initial indication of SentiKin will be postoperative pain, which is a shorter-term therapy. However as Denise mentioned, we are developing SentiKin also for other indications, including osteoarthritis.

And did you have a question about the additional programs?.

Yes.

Just a timeline on how we should think about those?.

Sure. So with the pilot studies reading out early next year, it typically takes us about a year to conduct pivotal studies. So based on the results of the pilot study, we will start pivotal studies in the first half of next year, most likely. I think that's probably the level of detail we want to give out at this point..

Okay, great. Thank you very much..

Thank you. Our next question comes from the line of Seamus Fernandez of Leerink. Your line is open..

Thanks, and thanks for taking the questions. So maybe, Denise and Richard, if you can talk a couple of things. You mentioned that you expect to be increasing, that SG&A is likely to increase as you gear up or prepare for potential marketing activities. But in your 8-K presentation, you also note the possibility of out-licensing certain products.

So where are we in terms of the commercial strategy for the company at this point time? Can you just update us on the specifics of the commercial strategy? And then the second question is, there are quite a number of potential new indications that are entering these pilot studies.

Maybe if you can just kind of narrow it down to the programs that one, you are most excited about and perhaps those that are or might be new to the agency, such that you might be exploring novel endpoints in particular? So just giving us a sense of what those endpoints might be that we should be learning about? Thanks..

Sure. Absolutely. So we are planning on commercializing our self, but are still are planning. However we have not ruled out either partnering or marketing with a hybrid model, which is, say, I would like to say, co-promoting for limited length of time, three to five years and then taking back the product.

So the options are, A, we self commercialize with our own sales force, B, we out-license or C, we have a hybrid model, somewhere in between. Based on a model so for, the best economics come from commercializing ourselves. And it is possible in the veterinary space to self commercialize even for general list products.

Having said that, we have been approached by a lot of potential partners who have expressed a lot of interest and the terms for licensing seem to be going up. So we haven't ruled that out. We will assess once we have pivotal data in hand and we will make the decision at that point. But plan A is to self commercialize.

With regard to the additional indications, you are right. We are pursuing a variety of indications with some very attractive product candidates. The two indications that are third and fourth on our list are fever for horses. And the equine market, as you probably know, is similar to the orphan market on the human side.

That is to say, smaller number of potential patients, but higher willingness to pay. So we think that's a very attractive market. As well as inappetence in cats. And we have done some primary market research and we believe that's a very large and attractive market that's being underserved.

One additional product that is further behind, but we think has a lot of potential is cat epo. So this is the cat version of epogen. And chronic kidney diseases are very, very common in cats and that leads to anemia. It's a very serious condition and based on preliminary market research numbers to-date, that looks very promising.

Now that last one to your earlier question, that will be a new product for the FDA, but the endpoint, we believe, will probable be same as the human side, which is to say in hematocrit or hemoglobin, which by the way, is an objective endpoint. And then fever in horses, the endpoint is temperature. Another objective endpoint.

And inappetence in cats, we believe the endpoint will be weight change in cats, which is another objective endpoint..

Great. Thank you. So it sounds like the goal here is just to maybe shift a little bit away from some of the more subjective endpoints where there might be a higher risk and really redirect the program to much more objective endpoints..

That's right. Absolutely, in cases where we can..

Okay. Great. Thank you..

[Operator Instructions]. Our next question comes from the line of Alan Leong of BioWatchNews. Your line is now open..

Hi, Richard. Thanks for taking my question..

Sure..

Its kind of funny I am following right up after the comment about deemphasizing pain and I was going to ask you about SentiKin because I noticed that you have increased the indications. You have osteoarthritis in dogs and you are also going after postoperative pain in horses.

Just wanted to get your color and your thinking about how you are going about expanding the indications for SentiKin?.

Sure. So osteoarthritis currently is the largest paying market for dogs. We did not pursue SentiKin to osteoarthritis, although we believe it is going to be very effective, primarily because we had CereKin ahead of it.

And now that we have discontinued that program, it makes a lot of sense to go after that market, especially because I think SentiKin has the potential to be more efficacious then NSAID. So we made that decision on that basis. In horses, SentiKin also makes a lot of sense because horses are unable to tolerate NSAID very well.

So they get a lot of gastric bleeding from NSAID. It's very difficult to dose that types drugs for horses. In our case because SentiKin is not an NSAIDs, we think it can offer a very attractive alternative for that market..

I have got to imagine since you are already giving a closer look at SentiKin to add the indication. One more indication at a rather marginal cost to taking the plunge..

That's an excellent point. Certainly, for the dog market, the marginal cost is lot less because unlike on that human side where the clinical cost drives the bulk of the development costs, in the veterinary stage, CMC cost can be substantial.

So you are right when you indicating [indiscernible] you do get quite a bit of additional efficiency by just additional indications..

Okay. Thank you very much..

[Operator Instructions]. And I am showing no further questions at this time..

All right. Thank you, operator, and thank you to everyone for calling in..

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