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Edited Transcript of KIN earnings conference call or presentation 9-May-19 8:30pm GMT

Q1 2019 Kindred Biosciences Inc Earnings Call

BURLINGAME May 10, 2019 (Thomson StreetEvents) -- Edited Transcript of Kindred Biosciences Inc earnings conference call or presentation Thursday, May 9, 2019 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Denise M. Bevers

Kindred Biosciences, Inc. - Co-Founder, President, COO, Secretary & Director

* Richard Chin

Kindred Biosciences, Inc. - Co-Founder, CEO & Director

* Wendy K. Wee

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Conference Call Participants

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* Benjamin Charles Haynor

Alliance Global Partners, Research Division - Analyst

* Brandon Richard Folkes

Cantor Fitzgerald & Co., Research Division - Analyst

* Nathan S. Weinstein

Aegis Capital Corporation, Research Division - Analyst

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Presentation

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Operator [1]

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Welcome to the First Quarter 2019 Financial Results Conference Call and webcast for Kindred Biosciences. (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 notes on the forward-looking statements in the company's SEC filings.

It is now my pleasure to turn the call over to KindredBio CEO, Richard Chin. Dr. Chin, please proceed.

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Richard Chin, Kindred Biosciences, Inc. - Co-Founder, CEO & Director [2]

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Thank you, operator. Good afternoon, and welcome to our first quarter 2019 financial results call. Joining me today from the management team of KindredBio are Denise Bevers, our President and COO; Wendy Wee, our CFO; and Katja Buhrer, our VP of Corporate Development and Investor Relations.

We have made substantial progress in Q1 of this year. While our sales to distributors, or move-in, were lower than in Q4 of last year, the sales from distributors to the clinics, or move-out, showed good growth. I should note that at an early stage of a launch, it is not uncommon to have significant variability in sales from quarter to quarter.

While it's still too early to make projections, key metrics, namely awareness, penetration, reorder rate and move-out to clinics, are tracking favorably alongside continued positive customer feedback. These metrics are all consistent with a product that's on its way to becoming a successful feline drug. We're seeing the desired effect from our commercial strategies and believe that it's a matter of when, not if, these results flow through to sales. It often takes time to change veterinary practice habits, so we need to be patient, but we are confident that Mirataz will reach our internal peak sales goals.

As a reminder, we previously said that we expect most of our drugs to reach between $10 million to $100 million in peak sales with certain biologics predicted to eclipse that range. We are comfortable that Mirataz peak sales will fall into the mid-range of that $10 million to $100 million. This would make it a successful feline drug and represent an outstanding ROI, given it cost us approximately $5 million to develop it. As the launch matures, we'll provide more specific guidance regarding peak revenue expectations.

As we disclosed in our press release today, we expect to be able to provide more clarity on the extent to which additional data will be needed to obtain European approval of Mirataz following our oral hearing with the European Medicines Agency in September. As excited as we are about Mirataz, our pipeline is even more impressive. Looking to the year ahead, we have tremendous news flow. This includes multiple pilot study readouts and the initiation of 3 pivotal studies, certain of which have blockbuster potential. We also anticipate our second approval in the next month, providing further validation of our capital efficient business model.

We hope to bring dipyrone IV, for which FDA has approved the trade name Zimeta IV, to the equine community in the second half of this year. There are 8 million to 9 million horses in the United States, and currently, more than 1 million are seen by a veterinarian for fever annually. Not all of those are treated because the only options available are NSAIDs off-label, and those have safety risks.

Turning to our IL-31 and SINK programs, we are even more excited because we've been getting additional inbound inquiries from other veterinary companies about our atopic dermatitis candidates since the positive results earlier this year. This is consistent with our view that these molecules have blockbuster potential. According to the latest figures, the dermatitis market is greater than $600 million in annual sales right now and continuing to grow. The market is not fully penetrated yet by any means, and let's keep in mind that atopic dermatitis is only a subset of the diseases and conditions that cause itching in dogs. We continue to believe that the more generally favorable safety benefit profile and the economic alignment with veterinarians will drive the majority of the dermatitis and itching market towards biologics.

We're pleased to announce that we'll be initiating our IL-4/13 SINK pilot study in the coming weeks. And as a reminder, it addresses the disease itself rather than just the itching. We know that dupilumab, which blocks IL-4 and IL-13, has been approved for atopic dermatitis in humans and it is doing very well in the market.

We believe that IL-31 and SINK may become both very successful products. But beyond dermatitis, the companion animal sector has been evolving rapidly, and we think we'll see other products that approach human product-like revenues. So as I said before, we believe we're going to see multiple products in the industry that sell in the several hundred million dollar range, especially biologics, across multiple diseases.

Now turning to financials. We have always been judicious about our cash burn, and we have been working diligently to control our burn rate. As Wendy will discuss, we are lowering our OpEx guidance for this year. I should note that 2019 expenditures reflect combination of a number of milestones for KindredBio, and our goal is to lower OpEx in the future years. For example, we're preparing to launch our second product this year, realizing the value of a pipeline by advancing core programs into final stages of development, and completing the buildout of our Kansas biologics biomanufacturing plant this year.

We have also been exploring several promising non-dilutive financing and revenue opportunities. For example, we've had quite a bit of interest in our biologics and fill and finish capacity. There's more demand than supply for both of these right now, and we're fortunately in a position to meet some of that demand with our state-of-the-art manufacturing facilities. So we're exploring the possibility of monetizing some of our capacity.

In addition, there is a very strong need and desire for innovative products on the part of larger veterinarian companies as reflected by the recent M&A trend in industry, which includes the acquisition of Aratana by Elanco. It just so happens that we have one of the most promising and broadest pipelines in the companion animal space, including what we believe to be the largest antibody pipeline. We are exploring partnering on some of our pipeline candidates that we currently can't put into development given our resources, and we believe a partnership could bring a meaningful, non-dilutive financing.

Thank you for your continued support. I will now turn the call over to Denise.

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Denise M. Bevers, Kindred Biosciences, Inc. - Co-Founder, President, COO, Secretary & Director [3]

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Thank you, Richard. On today's call, I will provide an overview of Mirataz's first quarter performance together with key pipeline updates.

While we're disappointed with the first quarter variability in sales, resulting in $0.5 million in Q1, we continue to believe that Mirataz will be a successful feline drug. That confidence is underpinned by several factors. First, the response from veterinarians remains uniformly positive, so we know this is a product that both practitioners and cat owners like. Second, across key metrics such as penetration, reorder rate and move-out sales from distribution into clinics, Mirataz is tracking favorably.

While we have always known that the penetration into the veterinarian market is clinic by clinic, and even veterinarian by veterinarian within those clinics, we also know that ramp is governed by the size of the sales team. In our case, we have a small but mighty sales team of 25 field specialists, which represents a deliberate decision to balance investment in our commercial organization with the advancement of our exciting pipeline that contains numerous candidates with blockbuster potential. As such, we believe that it will take longer than we originally anticipated to change practice patterns, resulting in a slower ramp to peak sales.

Post-launch, we've been able to analyze different adoption patterns among the veterinarian community more broadly. What we're finding is while many veterinarians and hospitals have made the switch from oral human generic mirtazapine pills to Mirataz in full, others are taking longer to change protocol, meaning they're still using both human generic mirtazapine and Mirataz as they get familiar with Mirataz and adjust their hospital protocol accordingly. That's why we're substantially increasing the number of educational programs involving our thought leaders and our KindredBio professional service veterinarians and sales specialists at both the corporate and local clinics. Because of the associated lead time with some of these initiatives, we expect results from these activities to benefit uptake in the second half of this year.

Additionally, now that we've penetrated over 10,000 of the 25,000 veterinarian clinics in the United States, we've initiated our direct-to-consumer campaign in the second quarter, along with a robust digital media push. I should mention that this campaign was intentionally staged to ensure that veterinarians had a level of familiarity and experience with Mirataz prior to receiving queries from consumers regarding the product. So as you can see, we remain confident in Mirataz's commercial prospect, our initiatives to drive uptake, and the appeal of a transdermal treatment for unintended weight loss in cats.

Turning to Mirataz EU, in April we received a request for further information from the EMA following their review of our responses to the first round of queries. The EMA's response included a request to discuss the submission at an oral hearing, which has been scheduled for September of this year. The outcome of the oral hearing will determine the extent to which additional data may be needed to generate -- needs to be generated to obtain European approval for Mirataz.

As Richard mentioned, 2019 is a catalyst-rich year for KindredBio. In the next month, we hope to receive approval of Zimeta IV, pending a positive outcome from the API manufacturer's response to the findings identified during the FDA's recent inspection. This drug, which is for the control of fever in horses, is used widely in other countries, and U.S. equine veterinarians have been eagerly anticipating it.

While the equine market is typically smaller than the canine and feline markets, it is nonetheless attractive, given high willingness to spend, little competition and high concentration. The market also lends itself to lower commercialization, marketing and sales investment. Given that there are a little over 4,000 equine-only veterinarians in the country, we plan to commercialize with a specialized direct sales force, in conjunction with distribution, and expect this product to be highly profitable.

Regarding dipyrone oral, we have agreed on a path forward with the FDA, and bridging studies will likely commence in 2020. This proprietary oral gel is intended as a leave behind for owners to administer to their horse for continued care following dipyrone injection. Accordingly, we expect it to expand the use of dipyrone and build upon the overall use of dipyrone injection.

Turning to our biologics pipeline, specifically canine atopic dermatitis, we expect results from our pilot field effectiveness study of KIND-016, a fully caninized, high-affinity monoclonal antibody targeting Ilterlukin-31, in the third quarter with a pivotal study expected to commence by year end.

We also anticipate pilot effectiveness results for our canine anti-IL-4/13 SINK molecule in the second half of this year. This candidate is expected to decrease the inflammation and truly address the disease. So we have a full spectrum, upstream/downstream, of product candidates that will satisfy different stages of the disease, and that's really exciting.

Our feline erythropoietin for the control of non-regenerative anemia in cats is also moving ahead nicely. We plan to initiate the pivotal effectiveness study for this product candidate before year end.

I'm pleased to announce that we have successfully completed our first cGMP drug substance manufacturing runs at our plant in Burlingame, California, which is a significant milestone for KindredBio. And cGMP fill and finish will be undertaken at our biologics manufacturing facility in Elwood, Kansas for this product.

As a reminder, this product candidate has been engineered by KindredBio to have a prolonged half-life compared to endogenous erythropoietin, a protein that regulates and stimulates production of red blood cells. Epo is a very complicated protein to engineer, as you may know from the human side. The more difficult and challenging, the more exciting it is to us because it creates a barrier to entry for other companies. Chronic kidney disease, which often causes anemia, affects approximately half of older cats, making it a leading cause of feline mortality. And human erythropoietins, which are multi-billion dollar products in the human market, have been shown to be immunogenic in cats. So we think this product candidate could have appealing revenue potential.

The pilot field effectiveness study is underway for our anti-TNF antibody targeting canine inflammatory bowel disease, and we expect a readout by the end of 2019. IBD can affect dogs at any age, but is more common in middle age and older dogs. And as we've discussed in the past, because this is an indication that significantly affects the quality of life of both the dog and its owner, we believe this also has the potential to be an attractive market opportunity.

Regarding KIND-014 for the treatment of gastric ulcers in horses, we have selected a formulation for development, and both the pivotal field effectiveness and pivotal safety study will begin in 2019. Equine gastric ulcer syndrome is a common condition in horses and is estimated to affect 60% to 90% of adult horses. So this has the potential to be a meaningful equine drug.

Another key milestone for KindredBio this year is the commissioning of our biologics manufacturing plant in Elwood, Kansas. We knew when we started the company that we had to invest the money to be an end-to-end drug development and manufacturing company, and now we've done just that. This is really going to separate us as a company, because if you have to outsource biologics manufacturing, or try to compete with human drug companies that have manufacturing campaigns for multi-billion dollar human products, it will be very hard to get a campaign slot and it will be very costly. We're building the Kansas facility very intelligently. Construction to support our initial production lines is on track to be completed by mid-year, and we have the ability to grow and add on biologics in lockstep with our portfolio.

In summary, we remain confident in the market potential for Mirataz over the long term. We believe our commercial strategies will have the intended effect. And it's a matter of when, not if, these results flow through to sales. Alongside an expansion in Mirataz sales, we expect to see a second FDA approval, pilot results across key pipeline candidates, and the initiation of 3 pivotal studies, as well as the commissioning of our Kansas biologics manufacturing facility, further driving value in KindredBio.

With that, I will now turn the call over to Wendy for a review of our first quarter 2019 financials.

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Wendy K. Wee, [4]

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Thanks, Denise. I'll start with a summary of our first quarter financial performance before providing an overview of our capital position and expectations going forward.

For the quarter ended March 31, we reported a net loss of $16.1 million, or $0.42 per share, as compared to a net loss of $10.0 million, or $0.36 per share, for the same period in 2018.

As Denise mentioned, we recorded $0.5 million in net product revenues for Mirataz in the quarter. Because Mirataz became commercially available last July, there were no product revenues in the year-ago period. The cost of product revenues totaled $92,000, resulting in a gross margin of 82%.

Research and development expenses were $7.2 million in the first 3 months of the year, compared to $5.3 million for the same period in 2018. The $1.8 million year-over-year increase was primarily due to higher headcount and related expenses as we advance our biologics programs and higher consulting expenses for quality assurance programs.

Stock-based compensation expense for the first quarter was $0.4 million as compared to $0.5 million for the year-ago period.

Selling, general and administrative expenses for 2019 and 2018 first quarters were $9.9 million and $4.9 million, respectively. The $5 million year-over-year increase reflects higher payroll and related expenses, marketing, travel and conference expense primarily related to Mirataz, as well as increased expenses incurred by our Kansas plant in the lead up to its commissioning. In addition, higher corporate infrastructure costs and stock-based compensation expense also contributed to the rise in expenses.

Stock-based compensation expense was $1.4 million for the quarter versus $1.0 million in the year-ago period.

As of March 31, we had $96.0 million in cash, cash equivalents and investments compared to $73.9 million as of December 31, 2018. The balance includes net proceeds of approximately $43 million from our January public offering.

Net cash used in operating activities for the first quarter was approximately $18.7 million. We also invested approximately $2.7 million in capital expenditures for the remaining portion of the buildout of our Elwood, Kansas manufacturing facility and the purchase of associated lab and manufacturing equipment for the facility.

As Richard mentioned, 2019 is a catalyst-rich year for KindredBio. The initiation of multiple pivotal studies will move core programs into the final stage of development. We are also preparing for the launch of our second drug and completing the buildout of our Kansas biologics facility.

While we are committed to making the necessary investments to capture the full value of our pipeline, given the approval of Mirataz EU is no longer expected in 2019, we are revising down our 2019 operating expenses. We now expect full year OpEx of between $57 million to $59 million, excluding the impact of stock-based compensation expense and acquisitions, if any.

Capital expenditures remain unchanged between $8.0 million to $10.0 million as we invest in lab and manufacturing equipment for our biologics program and build out the remaining portion of our Kansas facility. We are pleased to have timed these outlays such that the plant will come online at the same time as the maturation of our pipeline.

Given our quarter and cash balance, we believe we are fully funded into early 2021. This coincides with anticipated readouts from multiple pivotal programs throughout that year. As mentioned before, we have the ability to gate some of our early stage programs and associated expenses to prolong our cash runway. In addition, as a commercial revenue generating company, and with the plant and equipment as assets, we are continuing to evaluate opportunities for non-dilutive capital. So we believe we are in a strong financial position to achieve our corporate milestones.

With this, I will turn the call back to Richard.

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Richard Chin, Kindred Biosciences, Inc. - Co-Founder, CEO & Director [5]

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Thank you, Wendy. Operator, we are ready for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Brandon Folkes with Cantor Fitzgerald.

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Brandon Richard Folkes, Cantor Fitzgerald & Co., Research Division - Analyst [2]

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Firstly, on your atopic dermatitis pipeline, those seem very interesting and novel and I think there's a lot of value to be unlocked there, whether it be through yourselves or with a partnership. You mentioned you're getting some inbound interest. So how do you think about potential partnerships there? Is a partnership agreement, is it just being held back by a meeting of the minds of economics, or differing views in terms of where's the best stage in development to monetize that? Secondly maybe, could you provide some color on the bridging studies required for Zimeta oral? And then lastly, just any price sensitivity you saw during the quarter for Mirataz? I know you mentioned last quarter you had not seen any. Just any update there. Thank you.

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Richard Chin, Kindred Biosciences, Inc. - Co-Founder, CEO & Director [3]

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Great. Why don't I take the first question, and Denise can take the other two. So on the atopic dermatitis, we are flexible. There are several ways we can structure a deal. We can structure a co-development and a co-commercialization deal, or we can structure a strictly commercialization deal. Ideally what it would look like would be that we would utilize our sales force, as well as the sales force of the partner, to market these products. And really, it's not a matter of economics so much as trying to decide when the right time is, when the right amount of de-risking has taken place, and also what the right characteristics of the partner are. So there are several partners that are interested, so we're still deciding which would make the best partner in terms of the cultural fit, their marketing abilities and so forth.

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Denise M. Bevers, Kindred Biosciences, Inc. - Co-Founder, President, COO, Secretary & Director [4]

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Brandon, it's Denise. I'll take the next two questions. So as far as the bridging studies for dipyrone oral, we have had meetings with FDA, and we have agreed on a path forward, as I mentioned earlier. And I won't get into the exact details, but what I can tell you is FDA was very reasonable about these. It's a very straightforward pathway and similar to a protocol concurrence, if you will, where if we do these steps and then we shouldn't have any issue. One thing I should note is we are gating some of these activities into 2020 based on, as Wendy described to you, the reduction in OpEx. So we've prioritized some other things, but we will be lining up these studies and plan to complete them in 2020. As far as pricing sensitivity, we have not seen any concern with this. The move out from distribution into clinics is still quite good. And anecdotally as well, we have not had any pushback on the price increase.

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Brandon Richard Folkes, Cantor Fitzgerald & Co., Research Division - Analyst [5]

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Great. Thanks so much. And maybe one more, if you don't mind.

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Denise M. Bevers, Kindred Biosciences, Inc. - Co-Founder, President, COO, Secretary & Director [6]

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Sure.

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Brandon Richard Folkes, Cantor Fitzgerald & Co., Research Division - Analyst [7]

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We saw Walmart announce this week that it's moving into the online pet pharmacy with prescriptions. In the past, you guys have always talked about partnering with the vets to sell your products. How do you view how the animal health prescription landscape is shaping up in terms of how your products and your pipeline may be sold, just given that dynamic of more people moving to this online marketplace? Thank you.

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Richard Chin, Kindred Biosciences, Inc. - Co-Founder, CEO & Director [8]

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Yes, sure. I think that's an excellent question. I think the products that are the most vulnerable are oral products where there are a lot of substitutable products, flea and tick or other products like antibiotics where there are multiple products that do similar things. For us, people moving more to the online pharmacy is an advantage, because our products for the most part are unique, and our biologics are largely administered by the veterinarian. So that actually makes our products more attractive to the veterinarian. And so net-net, I think we'll be in a better position as companies like Walmart take that approach.

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Operator [9]

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And our next question comes from the line of Ben Haynor with Alliance Global Partners.

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Benjamin Charles Haynor, Alliance Global Partners, Research Division - Analyst [10]

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First off for me, you mentioned that the move-out growth from Q4 to Q1 is still going in the proper direction. Any chance you could share what that looked like sequentially on the move-out side?

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Denise M. Bevers, Kindred Biosciences, Inc. - Co-Founder, President, COO, Secretary & Director [11]

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Yes, it's a little unusual to share move-out. I can assure you that we've seen growth in that, but to get into specifics, that would be something that would then be a benchmark for all the rest of our products into eternity. So at this point, we're not really prepared to share that.

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Benjamin Charles Haynor, Alliance Global Partners, Research Division - Analyst [12]

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Okay. Understood. And then just looking at the percentage of revenue going to the proportion of distributors that you guys are dealing with, it looks like in the September quarter last year was about 80% going to the top 4 distributors, and then this quarter it looks like 87% to 2 distributors. Is that kind of a sign that maybe 2 distributors that were a big portion in Q3 of last year really didn't order much in Q1, or what's the right way to think about that?

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Denise M. Bevers, Kindred Biosciences, Inc. - Co-Founder, President, COO, Secretary & Director [13]

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Sure. So yes, so what happened was toward the end of the year, as you probably know, there was some movement in which distributors would take over corporate accounts, so there was some movement on the corporate account level. And as a result, one of the larger distributors ordered quite a bit to be prepared for that. And so while we had hoped to see the move-out early in Q1, it took the bulk of the quarter to move through that inventory. So that's why you're seeing that.

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Benjamin Charles Haynor, Alliance Global Partners, Research Division - Analyst [14]

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Okay. That makes a lot of sense.

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Denise M. Bevers, Kindred Biosciences, Inc. - Co-Founder, President, COO, Secretary & Director [15]

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Yes. Q2 should look different as far as distribution. You'll see a much more even distribution like you've seen previously.

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Benjamin Charles Haynor, Alliance Global Partners, Research Division - Analyst [16]

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And then kind of lastly on this topic. Is the -- did you telegraph the price increase prior to the end of the year, or was it -- and so people maybe ordered or distributors maybe ordered, or practices maybe ordered I guess as well, more in Q4 impacting Q1 as well?

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Denise M. Bevers, Kindred Biosciences, Inc. - Co-Founder, President, COO, Secretary & Director [17]

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So contractually, the distributors know 90 days in advance.

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Benjamin Charles Haynor, Alliance Global Partners, Research Division - Analyst [18]

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Okay. Got you. And then just turning to the pipeline and specifically epoCat, have you conducted any kind of market sizing strategies there? I know you've mentioned that a few of these have the potential to look like kind of human drug revenues. But just knowing that transfusions, if there's a cat that is at the clinic that is able to provide a transfusion, maybe that's $200, $300 to the pet owner at a minimum. If it's prepackaged whole blood or some type of prepackaged frozen fluid, it is more than that. The short shelf life, that can be $500 and up. Presumably it'd be a pretty high -- you could achieve a pretty high price. But thinking about capturing the market for these anemic cats, being that there's half of the older cats that have this sort of issue, I guess what's your kind of market sizing there? Anything that you could share in terms of what you view as the opportunity would be great.

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Richard Chin, Kindred Biosciences, Inc. - Co-Founder, CEO & Director [19]

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Yes, sure. So we know from epidemiological data that there are a lot of cats out there, millions of cats. So we know that the potential market is very large. If every cat that needed the drug got it, it could be very large. It's more difficult to estimate what the penetration will be. So it's a very broad range, right? So if there's several million cats that could potentially use it, if 75% got it versus 10%, it's very different. Our best guess is that this is a market that will grow over time and eventually could become quite big. But currently, there really isn't a market because the human erythropoietins are immunogenic. So I think we're in similar situation as let's say the pain market or the atopic dermatitis market was before really safe and effective drugs launched. Before Rimadyl launched or before Apoquel launched, the market looked very small. And then after a good drug was approved, the market turned out to be quite big. So that's what we think is possible, but I think we won't know until, number one, we have the final clinical data from our pivotal studies, and number two, until we frankly launch the product.

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Benjamin Charles Haynor, Alliance Global Partners, Research Division - Analyst [20]

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Okay. That's fair enough. Thanks for the thoughts there and thanks for taking the questions. I'll jump back in queue.

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Operator [21]

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And our next question comes from the line of Nathan Weinstein with Aegis Capital.

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Nathan S. Weinstein, Aegis Capital Corporation, Research Division - Analyst [22]

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So I have 2 questions and they're in different areas. So one is on Mirataz compliance and then the second one is on oncology. But on Mirataz compliance, there's some safety label around wearing gloves, washing hands. You have 3 quarters of sales behind you. Do you find feedback through the vet channel and talking to the pet owners that they're fine with the way that they administer Mirataz to cats and that was looking good?

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Denise M. Bevers, Kindred Biosciences, Inc. - Co-Founder, President, COO, Secretary & Director [23]

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Yes. Yes, we do. Yes, we haven't had any pushback. We haven't had anything even through our customer service line to indicate that. And it does not -- it virtually doesn't come up when we're talking to veterinarians. And it's not uncommon to have that labeling for other topical products, so veterinarians and cat owners are used to it.

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Nathan S. Weinstein, Aegis Capital Corporation, Research Division - Analyst [24]

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Okay, thanks. And then the second one on this other subject on oncology. Just based on recent deals that we saw take place in the space, and even outside the space in terms of diagnostics players who are looking at the oncology market in canines, we've talked about this in the past, but I was just curious if your guys' thinking has changed maybe in the last couple quarters or even now, like the way you're looking at how the oncology market might develop for companion animals.

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Richard Chin, Kindred Biosciences, Inc. - Co-Founder, CEO & Director [25]

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So, our thinking hasn't changed. Our thinking is that it's a large potential market, as long as you have a very effective drug. So we think it's different from the human market where on the human side, if you have a drug that extends survival by let's say a couple of months, then you can have a very successful drug. We think that in the veterinary market, if you have a drug that extends survival by a year or two, or results in let's say 30% or 40% cure such as you might see with checkpoint inhibitors, then you could have a very successful drug. Because there are actually 6 million cats and 6 million dogs that get cancer every year compared to 1.7 million people who get cancer every year. So there are a lot more pets that get cancer. And that's because even though you have about 1/3 of humans, cats and dogs get cancer, dogs and cats live for a shorter of period of time, so the annual incidence is higher. So it's a very large market, but we think the products have to have a very good profile.

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Operator [26]

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And our next question comes from the line of Andrew D'Silva with B. Riley FBR.

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Unidentified Analyst, [27]

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This is [Aman]. I'm jumping in for Andy. And I was hopping between calls, so I apologize if you hit on these topics. I'll start with Zimeta. Can you touch on what you've learned with your process with the FDA for the candidate? And what can be done to push them or keep them honest as it relates to their ADUFA timelines?

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Denise M. Bevers, Kindred Biosciences, Inc. - Co-Founder, President, COO, Secretary & Director [28]

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Yes. Yes, so obviously we always learn from every step of the way on every program and take those learnings into future programs. But one of the challenges with Zimeta is dipyrone is manufactured by very few manufacturers, and it's not a product that's available in the United States. Which has its advantages certainly from a competitive standpoint, however, it limits our -- the number of API providers. So that's one of the considerations for Zimeta. What we have learned, of course, is if the FDA misses an ADUFA date, there's very little incentive then to stay on task, which is largely why we filed our NADA. So as you may recall back in the fall, we resubmitted our NADA to close that out and put it back on an ADUFA timeline. So we're excited because that's coming up very shortly and we're hopeful for a positive outcome from that.

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Unidentified Analyst, [29]

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Great. And then just staying in that vein, you previously mentioned that you had identified the appropriate sales rep for the equine side of the business. Is that still true today, or has this re-inspection process resulted in potential lost human capital opportunities?

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Denise M. Bevers, Kindred Biosciences, Inc. - Co-Founder, President, COO, Secretary & Director [30]

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You would think it would have, but I'll tell you, we have a couple of the top equine industry folks on our team, and that is still attractive to those who are waiting in the wings. So I'm really -- and I check on this all the time. I ask our head of commercial all the time if we've lost any ground, but we certainly haven't. And also with our pipeline in equine and the veterinary sentiment for KindredBio within equine, as you can imagine, we've had a lot of time for equine veterinarians to get to know KindredBio. And we'll be launching this product in tandem with the AAEP, the American Association of Equine Practitioners, this year. So we're very, very excited about the talent that's to come on the team.

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Unidentified Analyst, [31]

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Thank you. That's helpful. And final question related to getting the Mirataz label expansion. Have you narrowed down what identification that could be for you? And could you please educate me on the regulatory and commercialization process difference between a label expansion versus introducing a new product?

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Richard Chin, Kindred Biosciences, Inc. - Co-Founder, CEO & Director [32]

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So we have identified the indications, but we have not disclosed it. And the approval process is similar to label expansion for the human side. We wouldn't have to file a new CMC section, but we would have to file a new efficacy section. And then safety would depend on whether the duration of therapy was the same. If it were longer, then we would have to file a new safety section as well.

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Unidentified Analyst, [33]

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Got it. Okay, thank you for the color and good luck this year. I'll hope back in the queue.

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Operator [34]

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(Operator Instructions) Our next question comes from the line of [RK] with H.C. Wainwright.

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Unidentified Analyst, [35]

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Couple of quick questions. The first one is when you were talking about Mirataz revenues for this quarter, you were highlighting some of the sensitivities associated with what could be happening. I have actually note couple of them here, so I just want to see how important these are and how are you tackling some of these. One of them was about protocol changes where vets are taking a little bit longer to get away from the generic molecule to Mirataz. And the other was about something about sales force numbers. I know your strategy was to start slow and build it up step by step. Does this quarterly decline go -- it's not specifically; it's just one quarter. Doesn't make a real data point. How are you thinking about these 2 factors at this time?

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Denise M. Bevers, Kindred Biosciences, Inc. - Co-Founder, President, COO, Secretary & Director [36]

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We -- obviously we talk about this quite a bit internally, and we feel like we've struck the right balance of commercial investment, given that we have a single product in our bag. Because again, don't forget, this pipeline is so rich. And when you balance out really increasing commercial spend for a single product versus what's to come and the value of these products, it's hard to make the argument. And likewise, as you know more than anymore, we've built a phenomenal amount of value in this company by build --. We're soon to have 2 fully commissioned state-of-the-art manufacturing plants, again, the deep pipeline that I've referenced on a number of occasions. So it really is a balancing act. And one of the things that is very exciting about this business model, and is something that we've said from day 1, is the ability to stretch runway. We have a number of programs, and so we're really able to titrate to where we are at any given moment and we have the team in place to do that. So at this point, we don't anticipate changing the numbers of the sales reps, but what we are doing are some really exciting educational programs and initiatives that will amplify their voice in a cost efficient way, and that's really important. And to your original question about protocol changes, yes, that also falls into education where compliance is so important to the success of these cats. Looking at unintended weight loss as the severe condition that it is and taking a holistic approach to that cat is really important. And we've already noticed some of these early education initiatives are starting to resonate.

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Unidentified Analyst, [37]

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Thank you. Thank you, Denise, for that. Regarding the conversations with the EMA and them asking for the oral hearing in September of 2019, where you said that after the hearing you will have an idea of what is the extent of additional data that may be required. So that's -- what are you planning to telegraph to us? Is it more clinical data or is it some additional non-clinical and maybe CMC sort of data? So what are we talking about here?

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Denise M. Bevers, Kindred Biosciences, Inc. - Co-Founder, President, COO, Secretary & Director [38]

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Sure. So yes, we're not 100% sure that we'll have to address -- generate any additional data, and of course not sure of the extent to which we would have to if we do in fact need to. So the way it works with the EMA is you have a country who is your initial rapporteur, your initial reviewer, and then when you go to oral hearing, the other countries participate. And so we have opportunity to go over the data that we do have and really hone in on if there's any additional data needed. At this point, we certainly don't think anything is insurmountable and we see a path forward for this approval, but we really won't know the extent of that until after the oral hearing. And at that point we will certainly be more transparent around the extent of it and the timelines associated.

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Unidentified Analyst, [39]

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Okay, thank you for that. And the last question for me is on the Zimeta IV. You were stating that when FDA decides -- no, pending FDA's review of the manufacturer's responses, which beginning in October. So does that mean the manufacturer has already responded to the FDA's request? And I believe there was some kind of time lag that the FDA was not visiting with the manufacturer. And I'm kind of a little bit murky on that part of the story, but I'm just trying to understand where is it right now? Is it a FDA review issue? Is it a manufacturer response issue? Where is that? Where is the bottleneck?

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Denise M. Bevers, Kindred Biosciences, Inc. - Co-Founder, President, COO, Secretary & Director [40]

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Yes, you're actually not as murky as you think you are. So, yes. So again, we triggered the NADA which forces an ADUFA timeline. And the inspection of the plant did come late in that timeline, but within the timeline. So they've inspected the plant, they provided their report, and the API manufacturer has already responded to that. So like I said, we're anticipating approval very shortly. And we haven't heard otherwise from FDA at this point, but of course we will disclose that one way or another once we know.

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Unidentified Analyst, [41]

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Thank you for taking all my questions. Good luck and talk to you soon.

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Operator [42]

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And I'm showing no further questions at this time, and I would like to turn the conference back over to Dr. Chin for any further remarks.

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Richard Chin, Kindred Biosciences, Inc. - Co-Founder, CEO & Director [43]

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Thank you, operator. We have a lot of milestones that position 2019 as a transformational year for KindredBio. Just in the next few months, we expect a second FDA approval and study results for IL-31. Throughout the remainder of the year, study results across other key pipeline candidates with blockbuster potential, the initiation of 3 pivotal studies, growth in Mirataz revenues and commissioning of our Kansas biologics facility position KindredBio strongly. As always, we would like to thank you for your support and look forward to providing many exciting updates in 2019.

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Operator [44]

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