Filing summary
Entity and period: The supplied filing is KemPharm, Inc.’s Form 10-K for the fiscal year ended December 31, 2018, filed March 1, 2019. The request identifies Zevra Therapeutics, Inc.; that name does not appear as the registrant in the filing text, so confirm the entity and filing match. This is an annual report, not a standalone fourth-quarter report.
Business context and outlook
KemPharm was a clinical-stage specialty pharmaceutical company using its Ligand Activated Therapy technology to develop prodrugs. Its lead programs were KP415 and KP484 for ADHD, with KP879 in preclinical development for stimulant use disorder. APADAZ, an immediate-release benzhydrocodone/acetaminophen product for short-term acute pain, received FDA approval in February 2018 and was licensed to KVK Tech for U.S. regulatory activities, manufacturing and commercialization.
Management expected to submit KP415’s NDA in Q2 2019, report pivotal efficacy data and submit an NDA for KP484 in 2020, and potentially begin regional APADAZ pilot launches in the second half of 2019. These are forward-looking targets, not reported outcomes. KemPharm was also evaluating commercial partners for its ADHD programs; Takeda held a right of first refusal after acquiring Shire.
Financial results and liquidity
| Metric | FY 2018 | FY 2017 |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $41.8 million | $20.6 million |
| General and administrative expense | $12.5 million | $12.8 million |
| Total operating expenses / operating loss | $55.9 million / ($55.9 million) | $33.4 million / ($33.4 million) |
| Net loss | ($56.5 million) | ($43.4 million) |
| Net loss per share, basic and diluted | ($3.15) | ($2.96) |
| Net cash used in operating activities | ($54.2 million) | ($33.1 million) |
No revenue meant gross or operating margins were not meaningful. R&D growth was primarily driven by KP415 clinical trials and APADAZ validation costs. FY 2018 net loss also reflected $1.6 million of severance expense; a favorable $6.0 million fair-value adjustment to derivative and warrant liabilities partly offset the operating loss. That non-cash fair-value movement makes year-over-year earnings comparisons less representative of underlying operations.
At year-end, cash and cash equivalents were $18.4 million, marketable securities $3.3 million and restricted cash $0.7 million. Current assets were $23.7 million versus current liabilities of $12.0 million. Total assets were $26.7 million, total liabilities $93.3 million and stockholders’ deficit $66.6 million. Cash, cash equivalents and restricted cash increased $7.1 million during 2018, mainly reflecting equity proceeds; operating cash use rose $21.1 million year over year.
Convertible notes totaled $83.4 million in principal: $6.7 million under the Deerfield note and $76.7 million of 5.50% senior convertible notes due 2021. The Deerfield note bears 9.75% interest, with remaining principal payments due in 2019 and 2020. The 2021 Notes mature February 1, 2021 and may be subject to cash repurchase upon specified fundamental changes. In October 2018, $9.6 million principal of the 2021 Notes was exchanged for Series A preferred stock convertible at $3.00 per common share, subject to ownership limits.
Material changes, risks and unusual items
- Loss from operations increased $22.5 million from 2017, primarily due to higher R&D spending. Net loss increased $13.1 million, partly offset by a $9.1 million year-over-year improvement in derivative and warrant fair-value adjustments.
- The October 2018 KVK agreement provides for estimated pre-launch payments and cost reimbursements of $3.4 million, including a $2.0 million payment contingent on an initial formulary-adoption milestone; sales milestones of up to $53.0 million; and a 30%–50% share of U.S. net profits. The filing does not establish that these contingent payments or commercial profits had been earned by year-end.
- The auditor’s report and management state that recurring losses, negative operating cash flows and stockholders’ deficit raise substantial doubt about KemPharm’s ability to continue as a going concern. Based on its operating plan, year-end resources were expected to fund operations and capital requirements into, but not through, Q3 2019. The auditor states resources were insufficient for at least one year from issuance of the financial statements.
- Management anticipated additional financing. The company had an at-the-market facility and, in February 2019, agreed to a potential $15.0 million stock purchase facility with Lincoln Park; use would dilute shareholders. After Form S-3 capacity limits, management estimated approximately $18.5 million of securities could be registered for sales under the Lincoln Park and ATM arrangements.
- APADAZ’s approved labeling did not establish abuse-deterrent properties by current measurement standards; the product is a Schedule II controlled substance and subject to opioid REMS and pediatric post-marketing assessments. Commercialization depends on KVK, market uptake, coverage and reimbursement.
- Key risks include clinical and regulatory uncertainty for pipeline programs, reliance on sole-source and contract manufacturers, DEA quotas and controlled-substance rules, competition from generic ADHD and opioid products, financing and dilution risk, and debt service obligations. The company reported no litigation expected to have a material adverse effect and no off-balance-sheet arrangements.
Important facts for investors to verify
- Confirm the registrant identity: this filing is for KemPharm, Inc., whereas the request names Zevra Therapeutics, Inc.
- Check subsequent filings for actual cash runway, financing raised, dilution, and any change in going-concern status.
- Verify whether the KP415 and KP484 regulatory and clinical milestones were met, and whether any FDA review conditions or delays arose.
- Track KVK’s APADAZ launch, formulary adoption, net sales, milestone payments and profit-share receipts; these were contingent and not assured.
- Review debt maturities, interest and repayment requirements, conversion activity, and the potential dilution from convertible securities, preferred stock, warrants and equity plans.