Filing identity and reporting period
Important identity note: The supplied filing is KemPharm, Inc.’s unaudited Form 10-Q for the quarter ended March 31, 2017; it does not identify Zevra Therapeutics, Inc. as the registrant. Confirm that this is the intended filing before relying on the figures below.
KemPharm was a clinical-stage pharmaceutical company developing prodrugs using its Ligand Activated Therapy platform. It reported no revenue and had not commercialized a product.
Financial results and liquidity
Amounts below are in millions of dollars, except per-share data.
| Metric | Q1 2017 | Q1 2016 / comparison |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $4.114 | $3.234 |
| General and administrative expense | $3.266 | $3.736 |
| Total operating expenses | $7.380 | $6.970 |
| Operating loss | $(7.380) | $(6.970) |
| Net loss | $(16.322) | $(2.934) |
| Basic and diluted loss per share | $(1.11) | $(0.20) |
| Cash used in operating activities | $(9.521) | $(3.865) |
- At March 31, 2017, cash and cash equivalents were $12.880 million; restricted cash, $1.100 million; marketable securities, $48.243 million; and long-term investments, $10.162 million. Together, these reported balances were about $72.4 million, including restricted cash.
- Current assets were $63.018 million and current liabilities were $4.808 million. Total assets were $75.641 million; total liabilities were $109.570 million; and stockholders’ deficit was $33.929 million.
- Convertible-note principal outstanding was $96.3 million: $10.0 million under the Deerfield note and $86.3 million of 5.50% senior convertible notes due 2021. The balance sheet reported convertible notes, net, of $91.560 million. The Deerfield note bears 9.75% interest.
- Cash and cash equivalents declined by $3.882 million during the quarter. Investing activities provided $5.702 million, largely from marketable-security maturities; financing activities used $0.063 million.
- No operating margin is meaningful because the company had no revenue. The filing gives no product-sales or profit guidance.
Changes versus the prior-year quarter
- Net loss increased by $13.388 million, mainly because the fair-value adjustment on derivative and warrant liabilities shifted from $10.278 million of income in Q1 2016 to $7.216 million of expense in Q1 2017. This adjustment was non-cash.
- Operating loss widened by $0.410 million. R&D expense rose $0.880 million as development activity increased for KP415, KP201/IR and KP511; G&A expense fell $0.470 million, partly reflecting reduced Apadaz pre-commercialization costs.
- Q1 2016 included a $4.740 million non-cash loss on extinguishment of debt, which did not recur in Q1 2017. Operating cash use rose by $5.656 million, with the prior-year period benefiting from a $2.4 million Apadaz NDA user-fee refund.
Outlook, risks, contingencies and unusual items
- Management estimated that cash, restricted cash, marketable securities and long-term investments would fund operating and capital requirements through the second quarter of 2019, based on its current operating plan and assumptions. The company said it expected continued operating losses and would need substantial additional funding; there is no assurance financing would be available on acceptable terms.
- Management expected continued investment in development. The pipeline table listed anticipated 2018 NDA submissions for KP415 and KP201/IR, and human proof-of-concept data milestones in 2017 for KP201/IR and 2018 for KP511. These were forward-looking targets, not guarantees.
- Apadaz had received an FDA complete response letter in June 2016 over proposed labeling and interpretation of abuse-deterrence study results. KemPharm submitted a formal dispute resolution request in November 2016 and said the process could take up to 12 months; approval and abuse-deterrent labeling remained uncertain.
- A stockholder class action concerning the 2015 IPO registration materials was pending; the plaintiff’s motion to remand was unresolved, damages were not quantified, and the company could not predict the outcome. No contingency accrual was reported at March 31, 2017.
- Other key risks included clinical and regulatory failure or delay, inability to obtain abuse-deterrent claims, reliance on third-party and sole-source manufacturers, controlled-substance regulation, competition, intellectual-property disputes, and dilution or cash demands from debt and future financing.
- The $7.216 million quarterly fair-value expense increased reported net loss but was non-cash. The derivative and warrant liability rose from $4.618 million at year-end 2016 to $11.834 million at March 31, 2017.
Most important facts for investors to verify
- Confirm the issuer: the supplied 10-Q is for KemPharm, not Zevra Therapeutics.
- Check subsequent FDA developments for Apadaz and the status and timing of the KP415, KP201/IR and KP511 programs.
- Assess the assumptions behind the stated runway through Q2 2019, quarterly operating cash use, and the company’s access to additional capital.
- Review the $96.3 million note principal, interest and maturity obligations, conversion terms, and any potential dilution or change-of-control repayment requirements.
- Track the IPO-related class action and any later changes in its status, potential exposure or accounting treatment.