KemPharm, Inc. — FY2017 Form 10-K
Filing identity: The supplied filing is for KemPharm, Inc., not Zevra Therapeutics, Inc. It reports the fiscal year ended December 31, 2017; the filing text does not provide a separate Q4 financial summary. Financial figures below are in U.S. dollars.
Business context and reporting period
KemPharm was a clinical-stage specialty pharmaceutical company developing prodrugs using its Ligand Activated Therapy platform, focused on ADHD, pain and other CNS disorders. It had no product revenue in 2017. On February 23, 2018, after year-end, the FDA approved APADAZ for short-term acute pain treatment; the company had not yet selected its commercialization strategy.
Pipeline priorities included KP415 and KP484 for ADHD; KP201/IR and KP511/ER and KP511/IR for pain; and preclinical candidates KP606, KP746 and KP303. At year-end, the company reported 87 granted patents and 125 pending patent applications worldwide.
Financial performance and liquidity
| Metric | FY2017 | FY2016 |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $20.6 million | $20.5 million |
| General and administrative expense | $12.8 million | $14.0 million |
| Total operating expenses | $33.4 million | $37.5 million |
| Operating loss | $33.4 million | $37.5 million |
| Net loss | $43.4 million | $16.5 million |
| Net loss per share, basic and diluted | $2.96 | $1.13 |
| Net cash used in operating activities | $33.1 million | $29.8 million |
FY2017 net loss rose despite a lower operating loss, primarily because a non-cash fair-value adjustment on derivative and warrant liabilities changed from $32.5 million of income in 2016 to $3.1 million of expense in 2017. The prior year also included a $4.7 million non-cash debt-extinguishment loss; FY2017 had no severance expense, versus $3.0 million in 2016. No gross margin was reported because the company had no revenue.
At December 31, 2017, the company had $10.9 million of cash and cash equivalents, $1.1 million of restricted cash, $31.4 million of marketable securities, $2.0 million of trade-date receivables and $3.3 million of long-term investments. Total assets were $52.5 million, total liabilities $110.0 million and stockholders’ deficit $57.5 million. The $1.1 million of restricted cash was pledged for a letter-of-credit facility.
Convertible notes had $96.3 million of principal outstanding: $10.0 million under the Deerfield note and $86.3 million of 5.50% notes due 2021. Deerfield debt bears 9.75% interest. Scheduled principal payments were $3.3 million in each of 2018 and 2019, $3.3 million in 2020, and $86.3 million in 2021. The balance sheet reports convertible notes net of discounts and issuance costs.
Investing activities provided $27.4 million in 2017, largely from security maturities; financing activities used $0.2 million. Cash, cash equivalents and restricted cash decreased by $5.9 million during the year. The auditor’s report included a going-concern emphasis: recurring losses, negative operating cash flows and the stockholders’ deficit raised substantial doubt about the company’s ability to continue as a going concern.
Material changes, outlook and risks
- Operating expenses declined by $4.1 million year over year, mainly because 2016 severance and APADAZ pre-commercialization costs did not recur at the same level. R&D expense was broadly stable, with KP415 the largest identified program expense in 2017 ($10.1 million).
- Management stated that existing resources were expected to fund operating expenses and capital investment only through the first quarter of 2019, based on its then-current operating plan. It expected to need substantial additional funding through equity, debt, collaboration, licensing or other arrangements; funding was not assured.
- Management anticipated KP415 pivotal efficacy data in 2018 and an NDA submission in Q1 2019; KP484 pivotal data and KP201/IR and KP511 human proof-of-concept data were expected in 2019. These were plans, not guaranteed milestones.
- APADAZ’s FDA-approved label did not state that the product was expected to deter abuse, despite the company’s development rationale. APADAZ is a Schedule II controlled substance and is subject to an FDA-approved REMS and deferred pediatric assessments.
- Material risks include clinical and regulatory uncertainty for pipeline candidates; reliance on contract manufacturers, including a sole U.S. KP201 supplier; controlled-substance quotas and compliance; uncertain reimbursement and commercialization; potential dilution and debt-service demands; and the company’s limited cash runway. A shareholder class-action lawsuit concerning the IPO remained at a preliminary stage; the company said it could not predict its outcome and reported no related accrual.
Investor facts to verify
- Confirm the issuer and period: this is KemPharm’s FY2017 10-K, despite the request naming Zevra Therapeutics and “2017 Q4.”
- Check subsequent filings for financing, cash runway, debt terms and whether the stated Q1 2019 funding horizon was extended or resolved.
- Verify APADAZ commercialization status, sales, partner arrangements, reimbursement access and any post-approval or pediatric requirements.
- Track whether KP415, KP484, KP201/IR and KP511 met the disclosed clinical and regulatory timelines, and review the evidence supporting any product claims.
- Review dilution exposure from convertible notes, warrants, equity awards and the at-the-market offering, as well as developments in the IPO-related litigation.