Richard Chin - CEO and President Denise Bevers - COO Wendy Wee - VP, Finance.

Kevin DeGeeter - Ladenburg.

Welcome to the First Quarter 2017 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. When posing questions, please pick-up handsets to allow for optimal sound quality.

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 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 first quarter 2017 financial results call. Joining me today from the management team of KindredBio are Denise Bevers, our Chief Operating Officer; and Wendy Wee, our VP of Finance. We have accomplished a great deal since our year-end called just two months ago.

As we announced on Monday, we initiated enrollment in our Zimeta Oral pivotal study for fever in horses. By complementing our IV formulation with will take of [Indiscernible], we expect to significantly expand the market potential of the Zimeta as we continue to build our equine franchise.

We have also been making excellent progress on our two lead programs and we continue to expect approval of both Mirataz transdermal for the management of weight loss in cats and Zimeta IV in the second half of this year assuming no unanticipated issues from the FDA.

We have now received feedback on the remaining sections of our new animal drug application. I am pleased to report that the comments were minor and we have either responded to or are in the process of responding to the comments.

Of course, once again, I must note that regulatory approvals are inherently unpredictable, but our expectation is approval on that timeline. As I stated in the last earnings call, the launch team is laying the groundwork to launch both Mirataz transdermal and Zimeta IV shortly after approval.

The team at KindredBio have successfully launched a lot of human and veterinary drugs and we know what needs to be done, both from a commercial and CMC perspective to ensure a timely launch. As Denise will detail, we continue to make excellent progress on the rest of our pipeline.

In our epoCat program, we saw an efficacy signal that was statistically significant and continue to advance our deep pipeline of more than 20 programs. On the business development front, we have attracted a high level of interest for both the EU and Japanese Rights to Mirataz with multiple parties in our data room as we speak.

In addition, our biologics program is generating significant interest, especially our IL31 antibody.

The topic dermatitis has become a high priority area for large veterinary companies and our marketing data indicate that the newly launch IL31 antibody for atopic dermatitis is growing exponentially and expanding the market even beyond what the JAK2 inhibitor has achieved. We believe we have [excellent IP] positioned in the IL31 antibody space.

There are only two binding epitopes on IL31 and [Indiscernible] has IP on the other and we have IP -- [Indiscernible] has IP on one and we have IP on the other. Any other company that wants an IL31 antibody will need to come to us. We also believe our antibody is differentiated from the therapies currently on the market.

On the in-licensing front, we continue to evaluate opportunities. We are in discussions about several late-stage in-licensing candidates as well as potential acquisitions. We're focused on candidates that complement our pipeline, have the potential to be accretive, and help amortize the cost of our commercial infrastructure.

In summary, we continue to be very excited about 2017, which is shaping up to be a transformative year. With the impending approval of our first two products, we expect a transition to a commercial stage company within just five years of launching KindredBio.

As we advance our pipeline, we are building a strong track record that underpins our strategy of developing drugs for $3 million to $5 million within three to five years. I will now turn the call over to Denise..

Thank you, Richard. While it has only been two months since we last reported our year-end update, I am pleased with the progress we have made in that short amount of time. I will begin with an update on our commercial ramp-up to support Mirataz and Zimeta IV.

I gave a detailed update during our year-end report, so I will focus on the advancements we have made since then. As we transition to a commercial stage company, the most important thing we can do to be successful is to hire top talent.

In the quarter, we have hired some very talented individuals in both our commercial and veterinary affairs department. These individuals will support our marketing efforts as well as our veterinary technical services department in both equine and small animal positions.

We have completed much of the commercial and technical groundwork to support successful launches in both the small animal and equine veterinary sectors.

This includes preparing our marketing messages and branding, preparing for sales training and deployment of our salesforce, publication development, thought leader outreach, and targeted scientific advisory meetings with equine and feline veterinarians.

We are busy preparing for the upcoming American College of Veterinary Internal Medicine Conference in June. And I'm very excited to tell you that ACVIM accepted all of the six abstract we submitted, which will present additional clinical information for both Mirataz and Zimeta.

During this conference, we will also be meeting with our thought leaders, sponsoring scientific and expert sessions, and meeting with veterinarians and attendees in our booth. We will be providing additional information regarding our posters in the coming weeks leading up to the ACVIM Conference.

Regarding commercial manufacturing for Mirataz and Zimeta, all activities are on track. We're scheduled to manufacture our commercial batches in the second half of this year for both products. As we discussed in our last update, we have worked very diligently to forecast our inventory needs.

Both of our products, if approved by FDA, will be the only products approved for their respective indications.

We have a lot of experience launching drugs into both the human and veterinary markets and we are setting up our commercial agreements such that we can add on additional manufacturing campaigns and increase campaign size with appropriate notice if the demand exceeds our initial expectations.

We continue to be very well prepared to launch our first two products in the second half of this year if FDA review goes as planned. Now, I will turn to our pipeline and give an update on the progress our team has made in the past two months.

As reported on Monday, we have begun patient enrollment in our pivotal effectiveness trial for the oral form of Zimeta. It's always exciting to start a new pivotal trial and the clinical development and operations teams are moving at full steam. We will be starting the target animal safety study of Zimeta oral this quarter as well.

We believe the IV and the oral formulations of Zimeta are highly complementary. By providing veterinarians with an approved IV formulation and an elegant oral gel to leave behind with horse owners and trainers, we expect to capture the full market opportunity for Zimeta.

For both Mirataz and Zimeta, we have received approval of the effectiveness technical sections from FDA. We have responded to comments on the CMC technical section and are in the process of responding to comments on the safety technical section for Mirataz. For Zimeta, we have responded to comments on both the CMC and safety technical sections.

We anticipate approval of both of these drugs in the second half of this year assuming the FDA finds our responses acceptable. We are pleased to report that all comments were addressable and we do not consider any to be showstoppers.

Our pilot field study of epoCat, our feline recombinant erythropoietin for the control of non-regenerative anemia in cats demonstrated a statistically significant increase in red blood cell levels. In parallel, we have further engineered the molecule which has made a significant improvement in its characteristics.

We will be moving forward with the enhanced variant of epoCat in our development program. 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 we have specially engineered with a prolonged half-life compared to endogenous feline erythropoietin. We have completed the first pilot field study of KIND-014 for the treatment of equine gastric ulcers.

Based on the study results, we are optimizing our formulation and expect to initiate the next pilot field study in the second quarter of this year.

Since we last spoke, we started our pilot field study assessing the oral tolerability and palatability of two formulations of KIND-015 for the management of clinical signs associated with equine metabolic syndrome. Our lead formulation will move into further development.

The second stage of the pilot study of KIND-011 are anti-TNF monoclonal antibody has also begun enrollment in sick or septic foals, again, quite a bit of progress in the last two months. We continue to enroll patients in our pilot field study of atopic dermatitis in dogs.

This study will assess the safety and efficacy of several anti-cytokine antibodies. Based on the results, we will select certain product candidates for further development. Our antibodies against cytokines and immune checkpoints continue to progress on track with initial pilot studies for some of these expected in 2017.

Lastly our KIND-Bodies program, which is our novel biologics scaffold with certain advantages over antibodies including bispecific binding is also proceeding on track. As you can see our pipeline continues to progress. Additionally, we have a number of other programs in the early stages of development which we have not yet disclosed.

As I mentioned in our last update, we also have some smaller products we plan to launch that don't need regulatory approval to help amortize the cost of the commercial infrastructure.

2017 is already proving to be a very productive year of R&D and launch preparedness at KindredBio and we look forward to keeping you updated on our accomplishments throughout the rest of this year. With that, I will now turn the call over to Wendy to update you on our first quarter 2017 financials..

Thank you, Denise. For the quarter ended March 31st, 2017, we reported a net loss of $6.5 million or $0.30 per share as compared to a net loss of $6.1 million or $0.31 per share for the same period in 2016. Total research and development expenses for the quarter were $3.8 million compared to $3.4 million in the year ago.

The $0.4 million year-over-year increase was primarily due to increased biologics batch production and testing costs including lab supplies as well as higher stock-based compensation expense and consulting costs. Total general and administrative expenses for the 2017 first quarter increased $0.8 million year-over-year to $2.8 million.

Expenditures grew across the Board including stock-based compensation expense, payroll and related expenses, legal and professional fees, as well as corporate and marketing expenses as we prepare for commercialization. We had no further restructuring charges beyond a one-time charge of $655,000 in the first quarter of 2016.

As of March 31st, our cash, cash equivalents and investments were $68.1 million compared with $57.8 million as of December 31st, 2016.

Net cash used in operating activities for the first quarter was approximately $5.9 million offset by $16.5 million in net cash proceeds from the sale of securities in conjunction with an at the market issuance sales agreement with FBR Capital Markets and Company. Most of the ATM shares sold to-date have been to institutions in large block trades.

We also invested approximately $0.3 million in capital expenditures for the buildout of our GMP Biologics manufacturing facility.

For the 2017 calendar year, we reiterate our previous guidance for operating expenses to be in the range of $30 million to $32 million, excluding the impact of stock compensation expense and the impact of acquisitions if any.

Our anticipated expenditures for the remainder of the year include the buildout of a small commercial team, preparations for distribution, and commercial scale up and manufacturing for Mirataz and Zimeta.

Additionally, we plan to focus on the development of our pipeline candidates as well as the necessary manufacturing requirements for our biologics program. With that, I will turn the call back over to Richard..

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

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from the line of Kevin DeGeeter with Ladenburg. Your line is open..

Hey, good afternoon guys. Thank you for taking my questions. A lot of interesting progress here. With regard to the epo program, can you just comment a little bit further with regard to the enhancements in terms of improvement or what I presume would be potency with a modified molecule and next steps there.

Should we anticipate additional field studies with enhanced formulation before moving forward into larger studies?.

This is for epoCat, right?.

Yes, that's correct..

So, that's right, so as you probably know we have fantastic protein engineers and they are making continual improvements to the molecule while we've been conducting the studies. So, we will do probably couple of small additional studies, but we are not going to be delayed in the timeline to any significant degree.

And we anticipate that if the properties in [Indiscernible] as we expect then this will be even a more attractive program..

And when I think about the improvements there, can you just generally characterize, is it primarily with regard to the metric of improved generation of additional red blood cells or are there other characteristics with regard to flexibility potentially on dosing and formulation that are also relevant in the enhanced formulation?.

Sure. So, the main improvements we'd been working on are number one, potency and number two, half-life. So, we think this molecule may be better with regard to both..

Okay, great.

And then with regard to the manufacturing facility and getting that up to GMP and online, can you just comment with regard to your additional steps that need to be taken to validate the facility?.

Those steps are almost done. We are in the final qualification stages. So, all equipment has been installed. Almost all the equipment has been fully validated.

So, we're just about to start what's called dynamic testing, which means that we've started operating the plant and checking to make sure that the environmental control HVAC and equipment are functioning as we expect..

Okay. And then one last one from me and then I'll get back in the queue. I appreciate the comments with regard to IL31 and in the intellectual property landscape there.

As we think of more generally about you Kindred's potential positioning in atopic dermatitis, when may we see a little bit more data from some of the preclinical compounds that you discussed previously? And can you just talk at a high level of your preference for a pathway forward in atopic dermatitis in the context of internally developed programs through -- or potential licensing or partnering with others?.

Right. So, that's an excellent question. We expect some data probably by this year because we're already starting clinical studies with our candidates.

With regards to the pathway forward, eventually, we will likely partner -- at least some of the compound because unlike Mirataz and Zimeta, where there isn’t a really competition, where it's fairly straightforward to commercialize ourselves, for a very large market against a strong competitor, it may be very helpful to have a partner.

But more importantly, there has been very high level of interest, especially given the stage of the program from potential partners are [senses] that almost every large veterinary company is very, very eager to enter the atopic dermatitis space, which is turning out to be a very large.

And as far as we know, we are the only company with the clinical stage candidate in that space. So, if the economics are attractive enough, then we may partner earlier than we had planned..

Okay, great. And I appreciate the feedback and I'll get back in the queue..

Thank you. [Operator Instructions] And I'm showing no further questions at this time. I'd like to turn the call back to Mr. Chin for closing remarks..

Thank you, operator. We're pleased with the progress we have made this year and believe 2017 will be a very successful year for KindredBio. As Denise mentioned earlier, our first two launches will be the only products approved for the respective indications, so there's a lot of exciting in the veterinary community for these drugs.

In a relatively short space of time, we have successfully delivered on our strategy of quickly and cost-efficiently developing drugs and we're now one of the leading biotech's in the companion animal therapeutic market. And with the recent acquisition of Nexvet, perhaps the only biotech with deep expertise in antibodies.

Our deep pipeline of more than 20 programs is supported by our world-class team with extensive experience, launching drugs, and a sophisticated commercial upgradation infrastructure. As we look ahead to the remainder of the year, we're excited to initiate additional pivotal studies and provide readouts for multiple pilot studies.

Combined with progress on our leading biologics program, these developments pave the way for a steady flow of approvals in the coming years. Our industry-leading biologics program in particular has significant revenue potential and we're excited about our deep pipeline.

I'd like to thank you for your support as we embark on the next stage of this exciting journey..

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