Filing and reporting period
The supplied filing is KemPharm, Inc.’s Form 10-K for the fiscal year ended December 31, 2019, filed February 28, 2020. It is not a filing for Zevra Therapeutics, Inc.; the filing identifies the registrant as KemPharm (Nasdaq: KMPH). The “2019 Q4” metadata refers to a period covered within this annual report, but the financial figures below are annual unless stated otherwise.
Business context and key financial metrics
KemPharm was a development-stage specialty pharmaceutical company using its Ligand Activated Therapy (LAT) platform to develop prodrugs. Its lead candidates were KP415 and KP484 for ADHD, licensed worldwide to Commave in September 2019; KP879 for stimulant use disorder was preclinical and subject to Commave’s option. FDA-approved APADAZ, for short-term acute pain, became nationally available through KVK in November 2019.
| Metric | FY 2019 | FY 2018 |
|---|---|---|
| Revenue | $12.8 million | $0 |
| Operating expenses | $33.2 million | $55.9 million |
| Operating loss | $20.3 million | $55.9 million |
| Net loss | $24.5 million | $56.5 million |
| Net loss per share, basic and diluted | $0.83 | $3.15 |
| Cash used in operating activities | $23.7 million | $54.2 million |
- 2019 revenue came from the Commave license: a $10.0 million upfront payment, $1.1 million of reimbursed third-party R&D costs, and $1.7 million for consulting services. The company reported no revenue from APADAZ product sales.
- R&D expense was $19.4 million, down from $41.8 million, primarily reflecting lower third-party development and personnel costs. The company said Commave would reimburse eligible development, regulatory, and commercialization expenses for licensed candidates, subject to agreement terms.
- Cash and cash equivalents were $3.2 million at year-end, with $0.3 million restricted cash; total current assets were $6.6 million and current liabilities $5.4 million. Total assets were $10.5 million versus total liabilities of $85.0 million, resulting in a $74.5 million stockholders’ deficit. Accumulated deficit was $245.7 million.
- Convertible-note principal totaled $80.2 million at December 31, 2019, with $77.3 million reported net of discounts and issuance costs. Notes under the Deerfield facility bear 6.75% interest; principal and accrued interest were due March 31, 2021. The debt is secured by substantially all company assets. Interest payments were deferred and interest could accrue in kind under amendments.
- Gross margin was not clearly presented as a standalone metric; the filing reports royalties and contract costs of $2.9 million against $12.8 million of revenue.
Material changes versus the prior comparable period
- Revenue increased from none in 2018, mainly due to the Commave transaction. Despite this, the company remained loss-making.
- Net loss narrowed by $31.9 million, primarily because operating expenses fell, including a $22.3 million decrease in R&D. Lower non-cash fair-value adjustment income partly offset the improvement.
- Operating cash outflow declined by $30.5 million. Cash, cash equivalents, and restricted cash fell by $15.6 million during 2019, to $3.6 million in total.
- Debt terms were reworked: in December, $71.4 million of 2021 Notes was exchanged for secured convertible notes, and maturities under the Deerfield facility were extended to March 2021. The filing also reports substantial potential dilution from conversions and exchange rights.
- APADAZ and its authorized generic launched nationally in November 2019, but the filing does not report product-sales revenue for the year.
Outlook, risks, contingencies, and unusual items
- Management estimated that year-end resources and projected revenues could fund operations into, but not through, Q1 2021; if revenues fell short, resources were expected to last only into, but not through, Q3 2020. The auditor’s report highlighted substantial doubt about the company’s ability to continue as a going concern.
- Management anticipated submitting an NDA for KP415 in Q1 2020 and initiating a pivotal efficacy trial for KP484 in 2021, both dependent on Commave’s decisions and program progress. KP879’s stated target was an IND submission in 2021.
- Potential funding included a new Lincoln Park purchase agreement of up to $4.0 million, licensing-related receipts, and other financing. Access to capital was uncertain; Form S-3 issuance capacity was constrained, and stockholder approval could be needed to use part of the Lincoln Park facility.
- The company identified a material weakness in internal control over financial reporting involving controls over non-routine transactions. Related misstatements across multiple accounts were corrected before issuance; management said remediation was being developed. Disclosure controls and internal controls were assessed as ineffective at year-end.
- Key risks include reliance on collaborators for development and commercialization; uncertain APADAZ adoption and payor coverage; clinical, regulatory, manufacturing, controlled-substance quota, and patent risks; heavy secured debt and refinancing needs; and potential dilution. The company also disclosed Nasdaq listing deficiencies, including market-value and minimum-bid-price requirements, with compliance deadlines in 2020.
- APADAZ is subject to an opioid REMS and is Schedule II controlled. The filing notes its approved labeling did not establish abuse-deterrent properties under current measurement standards. No material litigation was reported as pending.
Important facts for investors to verify
- Confirm the issuer identity: this is KemPharm’s 2019 10-K, not a Zevra Therapeutics filing.
- Review subsequent cash balances, financing, debt amendments or repayment, and the company’s ability to meet the March 2021 maturity; stated runway depended on projected receipts.
- Check Commave’s progress and decisions on the KP415 NDA, KP484 trials, expense reimbursements, and any milestone or royalty conditions.
- Verify APADAZ formulary adoption, prescriptions, net sales, profit sharing, and whether KVK achieved the initial adoption milestone; the filing does not provide clear 2019 commercial-sales results.
- Assess potential dilution from convertible notes, preferred-stock exchange provisions, warrants, equity plans, and Lincoln Park share sales.
- Track remediation of the material weakness and subsequent Nasdaq listing compliance.