Filing summary: KemPharm, Inc. (now identified in the request as Zevra Therapeutics, Inc.)
Reporting period: Three months ended March 31, 2020; filed May 13, 2020. The filing itself names the registrant as KemPharm, Inc., ticker KMPH. Confirm the issuer identity and any subsequent corporate name change when matching this filing to Zevra Therapeutics.
Business context and reporting period
KemPharm was a development-stage specialty pharmaceutical company using its LAT prodrug technology, with programs focused on ADHD and stimulant use disorder. Its partnered assets included KP415 and KP484 with Commave, and FDA-approved APADAZ with KVK. The company reported no commercial product sales; first-quarter revenue came from work and reimbursements under the KP415 license agreement.
Financial performance and position
Amounts below are in millions of dollars unless stated otherwise.
| Metric | Q1 2020 | Q1 2019 or prior date |
|---|---|---|
| Revenue | $2.09 | $0 |
| Royalty and direct contract acquisition costs | $0.66 | $0 |
| Research and development expense | $2.13 | $8.53 |
| General and administrative expense | $2.25 | $2.84 |
| Severance expense | $0.83 | $0 |
| Operating loss | $(3.78) | $(11.37) |
| Net loss | $(5.75) | $(12.29) |
| Basic and diluted loss per share | $(0.12) | $(0.46) |
| Net cash used in operating activities | $(2.02) | $(11.07) |
The $2.09 million of revenue comprised $1.6 million of consulting services and $0.5 million of reimbursed third-party R&D costs. The filing does not present a conventional gross margin. Net loss narrowed by $6.54 million, mainly as R&D spending fell; lower derivative-related fair-value income and higher net interest expense partly offset the improvement. Severance included approximately $0.4 million in personnel-related charges and $0.4 million in accelerated stock compensation.
At March 31, 2020, cash and cash equivalents were $2.36 million and restricted cash was $0.19 million. Total assets were $8.89 million; current liabilities were $75.56 million and total liabilities were $77.56 million. The company reported a $70.0 million working-capital deficit and $68.61 million of convertible notes, net, classified as current. Notes had $70.93 million of aggregate principal outstanding and were due March 31, 2021; the debt was secured by substantially all company assets. Stockholders’ deficit was $68.68 million. Cash, cash equivalents and restricted cash together declined by $1.01 million during the quarter, ending at $2.54 million.
Shares issued and outstanding increased from 36.35 million at December 31, 2019 to 56.76 million at March 31, 2020. The filing reports 65.76 million shares outstanding as of May 11, 2020. The share increase included 16 million shares issued through the Deerfield optional conversion feature and 4.31 million shares under the Lincoln Park equity purchase arrangement.
Material changes versus the prior comparable period
- Revenue began to be recognized under the KP415 agreement; the year-earlier quarter had no revenue.
- Operating expenses fell $5.51 million, principally because R&D expense decreased $6.41 million. G&A declined $0.59 million, while $0.83 million of severance and $0.66 million of direct contract acquisition costs were new.
- Operating cash use improved from $11.07 million to $2.02 million. Financing provided $1.02 million, primarily from Lincoln Park share sales, compared with $2.67 million a year earlier.
- Cash and restricted cash together were $2.54 million at quarter-end, versus $13.97 million at March 31, 2019.
- Convertible debt was restructured and exchanged, with $10.8 million of December 2019 note principal converted into 18 million common shares by March 31, 2020. Debt remains substantial and near-term maturity is a major liquidity concern.
Outlook, commentary, risks and unusual items
- Going concern: Management stated that recurring losses, operating cash outflows, the working-capital deficit and stockholders’ deficit raise substantial doubt about the company’s ability to continue as a going concern. Based on its operating plan and projected revenues, management expected resources to fund operations into, but not through, the first quarter of 2021. Additional financing is likely required, and may not be available on acceptable terms or at all.
- Financing constraints: As of March 31, the company estimated that Form S-3 capacity under the applicable public-float limit was about $6.8 million, substantially used by prior sales and the Lincoln Park prospectus supplement. Some purchase-agreement capacity could require stockholder approval. The company had received about $1.1 million gross from 4 million shares sold under the current Lincoln Park agreement by quarter-end.
- Subsequent events: The FDA accepted the KP415 NDA in May 2020, entitling the company to a $5.0 million regulatory milestone under its license agreement; the filing does not establish that this payment had been received by the filing date. On April 23, 2020, the company received a $0.8 million PPP loan at 1% interest, potentially forgivable subject to program requirements; forgiveness was not assured.
- Development outlook: The filing cited a potential KP415 PDUFA date of March 2021, planned KP484 additional and pivotal trials in 2021, and a possible KP879 IND submission in 2021. These were expectations, not assurances of approval or completion.
- COVID-19: The company could not estimate the pandemic’s financial effect. It warned of possible clinical-trial enrollment and regulatory delays, including for KP415, and reduced access to debt or equity financing.
- Control weakness: A material weakness in internal controls over non-routine transactions, identified at December 31, 2019, remained under evaluation at March 31, 2020; remediation had not been established as complete. Prior-period financial-statement errors were corrected before issuance.
- Other risks: Revenue depends on license milestones, reimbursements, partner development and commercialization, and ultimately product uptake. The company also highlighted debt covenants and maturity, dilution from convertible securities and equity issuance, sole-source manufacturing dependence, opioid and controlled-substance regulation, and Nasdaq listing compliance risks.
Important facts for investors to verify
- Confirm the filing-to-issuer match: this 10-Q is filed by KemPharm, Inc., not under the Zevra Therapeutics name.
- Confirm whether and when the $5.0 million KP415 NDA-acceptance milestone was paid, and whether further license milestones or APADAZ receipts were achieved.
- Review subsequent financing, debt maturity or lender forbearance developments; quarter-end cash was limited relative to current liabilities and debt due in March 2021.
- Check the status and terms of the PPP loan, including forgiveness or repayment, and the availability of remaining Lincoln Park or shelf-registration financing.
- Track KP415 regulatory review and development timelines for KP484 and KP879, including any COVID-related delays or changes in partner plans.
- Review progress in remediating the material weakness and developments affecting Nasdaq listing compliance and potential share dilution.