Filing identity and reporting period
Important identity mismatch: The request identifies Zevra Therapeutics, Inc., but the supplied filing is KemPharm, Inc.’s Form 10-Q (ticker KMPH), for the quarter ended June 30, 2021, filed August 13, 2021. Verify the issuer before relying on this summary.
KemPharm develops proprietary prodrugs. Its portfolio included newly FDA-approved AZSTARYS for ADHD, APADAZ for acute pain, and clinical or preclinical candidates KP484, KP879 and KP1077. The interim financial statements are unaudited.
Financial results and liquidity
Amounts below are in millions of dollars, except per-share data and where noted.
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $12.0 | $6.9 | $24.1 | $9.0 |
| Operating expenses | $6.2 | $4.3 | $11.3 | $10.2 |
| Operating income (loss) | $5.8 | $2.6 | $12.8 | $(1.2) |
| Net income (loss) | $6.2 | $0.9 | $(4.1) | $(4.9) |
| Net income (loss) attributable to common stockholders | $(10.7) | $0.9 | $(58.4) | $(4.9) |
- Revenue increased 74% in Q2 and 168% for the first half versus the comparable 2020 periods. Growth was primarily milestone-driven, not reported as commercial product sales.
- Q2 revenue included a $10.0 million AZSTARYS-related milestone after DEA scheduling of SDX; the first half included $10.0 million milestones for FDA approval and DEA scheduling. The filing also reports Corium consulting revenue of $1.6 million in Q2 and $3.2 million for the first half.
- Operating expenses rose 43% in Q2, led by higher R&D and general and administrative costs. The filing does not present a gross margin measure.
- Common-stockholder results were reduced by deemed dividends of $16.9 million in Q2 and $54.3 million for the first half, associated with warrant inducement transactions. These are distinct from reported net income or loss.
- At June 30, cash and cash equivalents were $132.3 million, compared with $4.2 million at December 31, 2020. Current assets were $136.2 million and current liabilities $6.0 million.
- Six-month operating cash flow was positive $14.0 million, investing cash flow was $(0.1) million, and financing cash flow was $114.0 million. Operating cash flow included substantial noncash adjustments, notably a $16.1 million debt-extinguishment loss.
- No convertible notes or loans payable remained at June 30 after the February payoff of the remaining facility debt. Lease liabilities totaled approximately $1.8 million operating and $0.1 million finance; derivative and warrant liabilities were $0.7 million.
- Stockholders’ equity was $130.7 million, versus a deficit of $66.4 million at year-end. Shares outstanding increased from 4.54 million to 34.98 million by June 30; 35.15 million were outstanding August 12.
Material changes, outlook and risks
- FDA approved AZSTARYS on March 2, 2021; the DEA classified SDX as Schedule IV in May. AZSTARYS itself is Schedule II because it also contains d-methylphenidate. The company said its partner expected U.S. commercial availability as early as the second half of 2021.
- The April amendment to the Commave license provided $10.0 million after AZSTARYS approval and $10.0 million after DEA scheduling, and increased potential remaining AZSTARYS regulatory and sales milestones to up to $590 million. These contingent amounts are not assured revenue; royalties depend on sales and contract terms.
- The company raised capital through a January public offering and January and June warrant inducement transactions, and repaid the remaining facility debt in February. The June inducement involved exercise of warrants for cash and issuance of replacement warrants, creating dilution potential.
- After quarter-end, KemPharm entered into a discretionary at-the-market equity agreement for up to $75 million; the filing does not state that sales had occurred under it. The company said existing cash was expected to fund operations for at least 12 months following the filing date, excluding projected revenue, some of which depended on milestones or royalties.
- No specific full-year revenue, earnings or cash-flow guidance was provided. Management anticipated continuing significant expenses and minimal positive or negative operating cash flows for the foreseeable future, and said profitability might not be achieved.
- Key risks include partner execution and product uptake, clinical and regulatory uncertainty, controlled-substance restrictions, competition and reimbursement, reliance on third-party manufacturers (including sole-source suppliers), financing needs and potential shareholder dilution. COVID-19 could disrupt trials, regulatory work, supply or financing.
- Other unusual items: the first-half $16.1 million debt-extinguishment loss; a $0.8 million Q2 gain on extinguishment, including PPP loan forgiveness; and noncash warrant fair-value changes. Management reported disclosure controls were effective and no material quarter change in internal control over financial reporting.
Investor verification priorities
- Confirm the issuer: this source is KemPharm, not Zevra Therapeutics.
- Check AZSTARYS launch, prescriptions, payer access and sales performance, and whether any license royalties or further milestones were earned.
- Reconcile revenue by source and distinguish recurring consulting or royalties from one-time milestones and reimbursed costs.
- Review cash burn excluding financing proceeds and noncash adjustments, and test the stated 12-month runway against actual subsequent spending and receipts.
- Assess dilution from outstanding warrants, equity-plan reserves and the $75 million ATM authorization; compare shares outstanding after June 30 with the August 12 count.
- Verify the terms and accounting of the debt payoff, inducement transactions, deemed dividends and warrant liabilities, including potential cash obligations upon specified transactions.