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

Kevin DeGeeter - Ladenburg

Thank you, operator. Good afternoon and welcome to our year-end 2016 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 had had a fantastic and highly productive year in 2016.

The Kindred Bio team is executing flawlessly and the programs are proceeding very well. Building on the tremendous successes of 2016 we expect 2017 to be a better year as well as we transition to a commercial stage company less than five years after founding the company.

On Mirataz program in the space of a single year we announced the positive pilot results started the pivotal study, announced the positive [indiscernible] results which was completed ahead of schedule and filed the NADA. Recently only about a year after announcing the pilot study results we announced the early approval of the effect of this technical section of the NADA.

We expressed approval of Mirataz by the second half of this year assuming no one had unanticipated issues from the FDA. Of course I should remind you that regulatory approvals are inherently unpredictable but based on our interactions with the agency so far our expectation is approval on that timeline.

We have recently been asked about our launch timelines after approval. We expect our commercial launch shortly after approval, the team at Kindred Bio are doing everything that needs to be done on the manufacturing side as well as the commercial side to ensure a timely launch.

Denise will discuss the commercialization of Mirataz in detail but I'm pleased to say that we received multiple attractive offers for the U.S. rights to Mirataz.

Frankly the interest was overwhelming. However, based on our more detailed market research we have conducted recently we believe that Mirataz may be a larger product than we had initially anticipated and that it is large enough to justify our sales force by itself.

Our market research firm which has done over 400 veterinary [ph] market research studies has told us Mirataz scored highest out of all the products they have tested. With 9 million cats experiencing inappetence every year it is an attractive market.

So while partnering would be economically more attractive in the short run, building our own infrastructure would be far more attractive in the long run. This is especially the case given that we have a rich pipeline of products including our long acting [indiscernible].

Furthermore as a young growth company we would prefer to book the revenues rather than a royalty stream that would more accurately reflect the value that we are creating. So in sum we're very excited to be launching Mirataz in the U.S.

Internationally we have had a high level of interest in the EU and the Japanese rights to Mirataz from potential partners as well and we expect to outlay since these territories. We anticipate filing of the European dossier by the end of this year.

Turning Zimeta, we filed multiple technical sections for Zimeta in 2016 as well and we received the approval of the effectiveness technical section. We have responded to the questions on the safety and the CMC section for Zimeta and we expect the approval of Zimeta by the second half of this year.

Once again assuming no unanticipated issues from the FDA and of course the same disclaimer about regulatory uncertainty applies. For Zimeta we fact our commercial launch shortly after approval as well.

Denise will go into more detail on the progress of other promising candidates in our pipeline but as usual I want to touch on our biologics program. The antibodies are progressing well and we expect initial pilot study results this year.

In addition to the antibodies for atopic dermatitis we have studies ongoing for several other undisclosed indications. We believe that biologics will become the cornerstone of companion animal therapeutic just say as they have on the human side.

I'm also pleased to report that we have nearly completed the commissioning of our biologics manufacturing plant. I would also like to note that there has already been interest from potential partners about our promising biologics pipeline.

On the in-licensing and the M&A front we continue to pursue opportunities aggressively. We are in discussions about several late stage in-licensing candidates as well as potential acquisitions.

We are focused on the potential to complement our pipeline as well as the potential to be accretive and to help amortize the cost of our commercial infrastructure. We believe there is an opportunity to grow through acquisitions as well as organically and especially if we cast our net a bit more widely in terms of targets.

In summary, we are very excited about the year ahead, 2017 will be a transformative year for us. We will become a commercial stage company, we are validating the compelling business model of developing each drug for $3 million to $5 million within three to five years.

We are building a strong track record of execution. Already we're leaders in the biologics space and plan to soon become the leader in the equine space.

In short we are pioneer in a burgeoning new field Thank you for your support. I will now turn the call over to Denise.

Thank you, Richard. To echo your comments we had an incredibly productive 2016 and are very excited about 2017 particularly about transitioning to a commercial stage company.

We have recruited some top talent in both commercial and veterinarian affairs positions and also have a very sophisticated commercial operations infrastructure in place. We have built a CRM set up our third party logistics and warehousing and have established our commercial manufacturing and forecasting systems with our CMOs.

Importantly and why I use the term sophisticated we have a fully integrated ERP system in place. This allows us to manage our finances in real time and will also allow us to manage inventory and sales in a single system.

As you know there are many well established revenue generating companies that do not have this caliber of integration in place. We are fully prepared for a rapid and successful launch.

We've also been deeply engaged in conversations with our thought leaders and what we have heard clearly from them is that there is a great need for both Zimeta for the control of fever in horses and Mirataz for the management of weight loss in cats. This is consistent with the fact that we have had phenomenal interest in our products at the American Association of Feline Practitioners and American Association of equine practitioners meetings this fall and most recently at the North American Veterinary conference in February.

We are headed this weekend to the Western Veterinary Conference and look forward to our meetings with thought leaders and veterinarians. Regarding manufacturing, it is important to note that we have performed all the necessary work to ensure rapid launch after approval.

We will not need to transfer the process to a different manufacturer nor introduce changes to the manufacturing process. We have also 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. All in all we are very well prepared to launch our first two products in the second half of this year if the FDA review goes as planned.

Now I will turn to our pipeline and give an update on all of the progress our team has made since last quarter. As Richard mentioned we were very pleased to receive early approval of our effectiveness technical section from Mirataz.

We have responded to comments from the FDA regarding the CMC technical section and are awaiting feedback from FDA on our safety technical section. Similarly for Zimeta we have received approval of our effectiveness technical section and are awaiting feedback on our CMC and safety technical sections.

We anticipate approval of both of these drugs in the second half of this year assuming FDA finds our submissions acceptable. We are also very pleased that the pivotal effectiveness study of our oral form of Zimeta will be starting in the next few months.

We are very excited about this elegantly formulated oral gel and expect the oral formulation will expand the use of the drug and build upon the success of Zimeta IV. Our pilot field study for epoCat, our feline recombinant erythropoietin for the control of non-regenerative anemia in cats continues to enroll patients.

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 recumbent protein that we have specifically engineered with a prolonged half-life [ph] compared to an endogenous erythropoietin.

We completed the first pilot field study of KIND014 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.

We will also be starting our pilot field study with the new formulation of KIND015 for the management of clinical signs associated with equine metabolic syndrome by the second quarter of this year. The second stage of the pilot field study for KIND011 are anti-TNF monoclonal antibody is planned to commence in sick or septic folds in the first quarter of this year.

As you can see we have a tremendous amount of activity in our equine business. We have an exceptional group of equine professionals on our team and we are well entrenched with the thought leaders in equine all of whom are very appreciative that we are developing drugs for horses' unmet medical needs.

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. Lastly our KIND bodies program which is our novel biologic scaffold with certain advantages over antibodies including bispecific finding is also proceeding on track.

So 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. 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.

We anticipate a very productive year of our R&D at Kindred Bio and look forward to keeping you updated on our accomplishments throughout the year. With that I will now turn the call over Wendy to update you on our fourth quarter and year-end 2016 financials.

Thank you, Denise. As both Richard and Denise noted that we continue to advance our pipeline in the capital efficient manner as well as preparing to transition to a commercial stage company.

For the quarter ended December 31, 2016 Kindred Bio reported a net loss of 5.8 million or $0.29 per share compared to a net loss of 6.4 million or $0.32 per share for the same period in 2015. Research and development expenses for the fourth quarter of 2016 totaled 3.5 million compared to 4.6 million for the same period in 2015.

General and administrative expenses for the fourth quarter of 2016 were 2.4 million compared to 1.9 million for the same period in 2015. For the year ended December 31, 2016 Kindred Bio reported a net loss of 22.5 million or a $1.13 per share versus a net loss of $27.1 million or a $1.37 per share for the same period in 2015.

Research and development expenses for the year ended December 31, 2016 were 13.9 million compared to 19.4 million in 2015. Stock based compensation expense related to research and development was 1.5 million versus 1.9 million in 2015.

The 5.5 million year-over-year decrease in research and development expenses was primarily due to lower payroll and related expenses following a reduction in headcount along with lower clinical trial cost and stock based compensation expense. 2015 expenses included pivotal field trial costs for [indiscernible] and Zimeta.

General and administrative expenses for the year ended December 31, 2016 were 8.3 million compared to 7.9 million in 2015. General and administrative stock based compensation expense was 2.2 million in 2016 versus 2.3 million in 2015.

The 0.4 million increase in general and administrators expenses was related to increased headcount including higher marketing and corporate expenses as we have initiated pre-launch activities and the bill out of a small commercial team. The increase was offset in part by lower consulting and professional fees as well as reduced stock based compensation expense.

We recorded a restructuring charge of 655,000 for payroll related cost which was paid in the first quarter of 2016 in order to streamline our development programs and extend our cash runway. At December 31, 2016 Kindred Bio had 57.8 million in cash, cash equivalents and investments.

Net cash used in operating activities for 2016 was approximately 18.8 million. We also invested approximately 1.6 million in capital expenditures for the build out of our GMP biologics manufacturing facility.

In December 2016 we filed registrations for an ATM, through February 28th we sold approximately 1.9 million shares and received approximately 11.5 million in net proceeds, 99.4% of funds raised was with two large institutional investors through large block sales. We do not currently have any immediate plans to further utilize the ATM.

We believe our existing cash and investment balances will be sufficient to fund our operating plan through at least the end of 2018. With respect to spending in 2017 we are preparing for the commercial launches of Mirataz and Zimeta and we will continue to spend on our core pipeline and programs.

Accordingly for 2017 we expect expenses of between 30 million and 32 million excluding the impact of stock based compensation expense and the impact of acquisitions if any. Our anticipated expenditures for 2017 include the build out of a small commercial team and preparations for distribution, commercial scale up and manufacturing for Mirataz and Zimeta.

Additionally we plan to focus on the development of epoCat, KIND014, KIND015 and KIND011 as well as the necessary manufacturing requirements for our biologics program. With that I will turn the call back over to Richard.

Operator we're ready for questions.

Really I'm going to focus primarily on Mirataz commercialization and disclosure that you do plan to bring that to market yourself in the U.S. How should we think about the level of investment in sales force buildout for Mirataz for 2017 and how does that factor into the guidance with regard to operating spend of 30 million to 32 million.

So we're planning on launching with about 20 to 25 sales reps and the guidance we're giving includes those costs.

And when should we look for those costs that primarily begin to filter in third quarter, are they potentially into the first half as well?

We've built a lot of our infrastructure already as I've already discussed, the last thing we will do is bring on our sales reps. So our goal is to complete our customer relations management system, all of our sales training material and the very last thing we'll do is pull the trigger on the sales reps, get them trained and get them deployed.

so I think you know second half TO third quarter Somewhere in that range and we will judge that based on our communication with the agency.

And as we think of building commercial infrastructure within the feline market. As you evaluate potential acquisition business development opportunities does some of those include the potential for the addition of a feline or companion animal sales force with some of those assets or should we think about business development as being really independent of the question of the build out of sales force for Mirataz.

So most of the opportunities we're looking at would come with a product not necessarily a commercial infrastructure with it. Having said that we're looking pretty broadly because every product that we can add to the portfolio improves our margins and improve our numbers.

And then just lastly for me and I'll get back into queue and let others ask some questions. In the context of a European commercial strategy for Mirataz, mentioned interest from partners should we think of the right approach in Europe is likely including a single partner or should we think of the more likely scenario being country by country or regional partnerships is the right way to build out the markets for Mirataz?

That would be dictated by the economics. We have been talking to quite a few partners, I would say about half the partners are large and would cover the entire continent.

I would say the other half are you know regional players and what we'll do is we'll look at the terms sheet as they come in and then make the decision based on the economics.

And lastly just is your working assumption that there's a potential for that to be a first half of 2017 event or is it really too early to put that level of granularity around the discussions?

Yes, at this point we wouldn't be giving guidance on when. We do have a little bit of time because as I said European dossier will go before the end of this year.

We have several months to consider it at least.

Just following up on Kevin's of question on Mirataz, you mentioned that you now see it based upon the survey work that you've done, that it's a larger product or likely a larger product than you had initially anticipated. I guess how big do you see that market being and if you can't answer that I guess how much bigger than your original assumption did that study comeback as showing?

So we would prefer not to give revenue guidance as you probably expected. Every time we do more detailed research and provide more information about our product to the veterinarians and pet owner the better the results look indicating to us that this product specifically with the administration and the safety and efficacy profile has is very attractive.

What I would say is that the new numbers really speak to the untreated population. So theirs is about 9 million cats with this condition every year about 3 million are currently treated, our initial numbers were largely based on replacing the currently treated market and the untreated market that's where a lot of the potential upside is.

So what I would say is that it's substantially larger -- I would hesitate to put you know precise numbers out there.

And then you mentioned during the prepared remarks smaller products that you could you come out with that don't necessarily need regulatory approval, what might those look like and how big might those opportunities be?

Sure. So we're keeping those a little bit close to the chest just for competitive reasons but they are relatively small products but there are certain products that we will be able to market without FDA approval, so we want to do the best we can to amortize the commercial infrastructure you know as Richard said we're working very aggressively on M&A opportunities but we always want to leverage the sales force if we can.

So as we get closer to having those products planned and we commit to those we'll make announcements.

Okay. And then when it comes to epoCat it sounds like you have enrolled quite a few cats there, I guess how many have been enrolled and when should we expect to see some data from the pilot study?

So the enrolment is ongoing, we haven't disclosed yet how many have been enrolled. We expect to have some results this year so where we are now is if you recall we did a pilot study in healthy laboratory animals and that looked good and right now we're in enrolling client owned animals or pets with anemia and we are testing out different doses.

So we are -- I would say we are well on our way to having sufficient results to disclose but beyond that if I want to hold off on discussing it.

Okay. And then just a couple more quick ones for me, what do you anticipate the pilot field study looking like for the equine metabolic syndrome, how horses, how long are you going to follow them etcetera?

Yes. So we're working on our protocol for that and working with the FDA to finalize that protocol.

So we haven't disclosed that yet and it will be a longer study given the indication you know again it's a bit similar to Type 2 diabetes in humans so it certainly won't be as shorter study as we saw with Zimeta for treating fever but when we do get closer to having a final protocol you know we can talk about it at that time.

Okay. And then you mentioned the Western Vet Conference, it looks like you got a 10x20 booth there meeting with key opinion leaders and that.

Any other activities you have planned or anything else that you can discuss that might come out of that maybe?

Yes, you're absolutely right. We have lots of meetings scheduled with thought leaders.

We have some scientific discussions set up with some of our consultants who are working with us in the thought leaders space to talk about some of our programs. We do have some discussions set up with some potential partners for as Richard mentioned you know future potential for biologics or the ex-U.S.

rights to Mirataz. So we have a tremendous amount of activity for Western Veterinary conference.

This is RK and I'm sure you guys are excited entering into 2017 with potentially two products coming to the market. So I have a few questions, let's start out with Mirataz.

It looks like the topic of the hour at this point. In terms of what is going on with the FDA in terms of them reviewing your application.

In the human world there is certain "times" that the FDA takes. Is there something like that in the vet world and also in your discussions with the FDA how do you see this dialogue going?

Sure. So each technical section and the main sections being effectiveness, safety and manufacturing, each one of those sections has a 180 day or six month review timeframe so that’s why we mentioned we are very pleased to get an early response on effectiveness.

We are anticipating our feedback on our safety in the coming months and then we have already responded to our questions on manufacturing so as far as the communication with FDA is it's been quite good, we haven't seen any showstoppers, there were no questions that we couldn't answer. So things are really proceeding as we expected we're very pleased.

Okay. And then on the commercialization front, I understand generally that vet products get off in selected geographies before progressing into a nationwide launch and with regards to the strategy for Mirataz let's say the product gets uploaded sometime in late summer or early fall 2017 so how much time would you need such that you are promoting this product nationally.

Yes. So we done a lot of the groundwork already.

We've already mapped out our territories where we anticipate having our very own Kindred Bio sales people, we've met with distributors so we understand very well their capabilities, their territories that they'll be supplementing and our goal is to launch as quickly as humanly possible after approval. So there are certain things that just take time, you get the final label and you've got to get that label on your packaging so there are certain things that are just things that take weeks you know following the approval but aside from that we're being as proactive as possible and we've had a tremendous amount of unsolicited interest from various sales reps and because our team is so well entrenched in the animal health industry we already have many of our eye on many of our sales reps, so we anticipate a very smooth recruitment process, again getting them very well trained and deployed quickly.

But we don't want to keep a bunch of sales reps on the book if we don't need them that would be the very last thing we do is bringing the sales rep.

Fantastic. Couple questions on Zimeta, I understand that the you're getting ready to start your oral trial, what needs to be done before you pull the trigger and get the trial started?

Are you waiting for certain commentary to come back from the FDA before they start that study?

Sure. So this program will be a very straightforward program for us given that we had such a successful program with IV [ph].

So we have our protocol ready to go we're just doing the final packaging of things if you will on our formulation and then we just have to initiate the sites and get the study started. So we're deploying our clinical operations team as we speak to get that going and so you literally within the next couple months we'll have that trial up and running.

Okay. And then once you get your IV approved is there any part of that application that you can take and utilize into expanding into the oral formulation or do you need to conduct as if we are conducting for the first time the whole bit in terms of clinical development to get the oral formulation approved?

Sure. That’s actually a really good question, so we spent a lot of time before starting this program you know thinking through strategically and meeting with FDA to discuss it because we were thinking you know perhaps we could do a bridging study or some sort of bio-equivalent but when we mapped it all out it actually took longer to try to tie the IV program to the oral rather than just doing an oral discreet program and again it's a short indication you know it's acute treatment and we had we had such a successful program initially, we knew we could run this very expeditiously.

So it actually came out to a shorter and more expeditious timeline to run a discrete development program for oral than to try to tie it to IV but that's a really good question.

And I think the key is that these programs are so much less expensive compared to the human side when you do the evaluation sometimes it works out better this way.

I understand the cost I was just more thinking in terms of the timing. And then you know one last question on Zimeta before we move on to another topic.

In terms of preference that is preference by the vets or by the horses, is there are preference between the IV and oral and would there be any reason for the vets to wait for the oral formulation even though you have the IV on the market?

So the vets are very excited and familiar with the IV formulation, so they like to have that in their trucks ready to go to again very rapidly treat you know an acute fever. However they really like to have a lead behind in their armamentarium for the owners.

So we really see the oral expanding upon the IV use and I don't see any reason why the veterinarians in particular would wait for the oral formulation.

And that's good to know. One last question and this is more on the manufacturing plan that you're putting together and trying to commission.

Now that you're spending a lot of money and getting a facility done. So are you planning to do this so that your next expansion on the clinical programs is mainly going to be biologics and you want to control the costs of that development and that's the reason why you're putting up you know this upfront money that you may not need to be spending.

So we do expect that the majority of our products will eventually be biologic that’s because number one from the human side we know that the efficacy and safety profile of biologics often tend to be better than small molecules. So for example if you look at the atopic dermatitis space we see [indiscernible] we see that it is effective we see the side effects and we know that on the human side when you've had a small molecule, an kinase inhibitor competing against an antibody, antibody typically wins.

So that's number one, number two we think that biologics aligned interests of veterinarian with us because it means that they will see the patients more often that day they will administer the drugs and as you know veterinarians rely on dispensing drugs for substantial part of their profits. They won't have to worry about that revenue source being taken away from them by internet stores or big box stores so for a variety of reasons we think the biologics will be a better thing for the patients, for the veterinarian and for us.

In addition, we think we have a really good biologics team and we think that will be a source of competitive advantage. Now given all that we would like to be in control of the manufacturing for both cost and for quality and we did calculations on what it would cost to outsource first versus keep the manufacturing in-house and with the number of products in our pipeline it clearly came out that economically it made sense for us to build our own plant.

So that's the background behind why we decided to put up a plant.

Thank you and thanks for bringing up epoCat [ph] Richard. So let me ask you this last question so in your program for atopic dermatitis, would you be required or would you like to do you know compare your product against [indiscernible] just so that you get an edge at least for commercial success even if it's not for an approval requirement.

Right. So it is definitely not an approval requirement and most likely we won't do a comparison at the beginning because lot of the advantages I think speak for themselves for example administration, IV administration which we think is superior form of administration and oral administration for conditions like this and most products if you look on the human side once again have not needed head to head comparisons.

Now I won't rule that out later down the line but I think we will need that.

We will definitely don't need it for regulatory approval, as a matter of fact you know the Center for Veterinary Medicine really considers placebo control trials to be the gold standard. So we would do what is most expeditious to get to an approval from a regulatory standpoint.

Thank you, Operator I would like to thank the listeners for your support as we embark on the next stage of this very exciting journey Thank you.