KemPharm, Inc. — Form 10-Q Summary
Reporting period: Quarter ended September 30, 2018; filed November 9, 2018. The filing identifies the registrant as KemPharm, Inc., not Zevra Therapeutics, Inc.; investors should verify the company and filing match the requested issuer. Financial amounts below are in U.S. dollars; statement amounts are generally in thousands unless noted.
Business context
KemPharm is a specialty pharmaceutical company developing prodrugs using its Ligand Activated Therapy technology, with programs in ADHD, pain and other CNS conditions. It had FDA approval for APADAZ, an immediate-release benzhydrocodone/acetaminophen product, but reported no revenue through September 30, 2018. Its lead clinical candidates included ADHD programs KP415 and KP484 and pain programs including KP201/IR and KP511.
Financial performance and position
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development expense | $13.330m | $6.293m | $35.455m | $15.057m |
| General and administrative expense | $2.992m | $3.319m | $9.544m | $10.159m |
| Operating loss | $(17.958)m | $(9.612)m | $(46.635)m | $(25.216)m |
| Net loss | $(15.071)m | $(9.981)m | $(51.283)m | $(32.820)m |
| Basic and diluted loss per share | $(0.94) | $(0.68) | $(3.33) | $(2.24) |
- For the nine months, operating cash use was $39.205m, compared with $26.164m in 2017. Investing activities provided $25.368m, primarily from marketable-security maturities and sales; financing provided $4.754m, mainly from ATM share sales. Cash, cash equivalents and restricted cash declined $9.083m to $2.888m.
- At September 30, cash and equivalents were $1.788m, restricted cash $1.100m and marketable securities $11.239m. Current assets were $16.737m versus current liabilities of $18.323m. Total assets were $18.737m and total liabilities $114.082m; stockholders’ deficit was $95.345m.
- Convertible-note principal was reported as $93.0m: $6.7m under the 9.75% Deerfield note and $86.3m under the 5.50% notes due 2021. The balance sheet carried convertible notes, net, of approximately $90.5m. Cash interest paid in the first nine months was $5.280m.
- Operating and net margins are not meaningful because the company had no revenue and sustained losses.
Changes and notable developments
- Year-over-year R&D expense rose $7.037m in Q3 and $20.398m for the nine months, primarily due to KP415 clinical trials and APADAZ validation. Q3 included $1.636m of severance expense after an executive resignation, including $1.236m in accelerated stock compensation.
- Q3 net loss increased $5.090m year over year despite a $4.468m noncash fair-value gain on derivative and warrant liabilities. For the nine months, the fair-value adjustment was a $0.289m gain, versus a $2.381m loss in 2017; these marks contributed to reported earnings volatility.
- After quarter-end, the company sold 8,333,334 common shares at $3.00 each in an underwritten offering, receiving approximately $23.2m net. Management said the September 30 resources alone were insufficient through Q1 2019; including the offering proceeds, resources were expected to fund operations into, but not through, Q3 2019.
- In October, holders exchanged $9.577m principal of 2021 notes for Series A preferred stock convertible at $3.00 per common share. By November 8, 2.080m common shares had been issued on conversion; 3,337 preferred shares, convertible into 1.112m common shares, remained outstanding.
- In October, KemPharm licensed U.S. APADAZ regulatory activities, manufacturing and commercialization to KVK. Terms include estimated $3.4m in pre-launch payments and cost reimbursements, including a contingent $2.0m formulary milestone; up to $53m in sales milestones; and a 30%–50% share of quarterly net profits. KVK was expected to begin regional pilot launches as early as the second half of 2019. These payments and launch timing are contingent, not assured.
Outlook, risks and contingencies
- Management stated that recurring losses, negative operating cash flows and the accumulated deficit raised substantial doubt about the company’s ability to continue as a going concern within twelve months after issuance. The company expects continuing losses and requires additional financing; there is no assurance financing or collaboration proceeds will be available on acceptable terms.
- Management reported positive top-line results for the KP415 pivotal efficacy trial in children aged 6–12 and for oral and intranasal human abuse-potential studies of its prodrug component. These are company-reported top-line findings; regulatory approval and commercial success remain uncertain.
- The filing’s pipeline table projected KP415 NDA submission in Q1 2019; KP484 pivotal efficacy data in 2019 and NDA submission in the first half of 2020; and 2019 NDA submissions for KP201/IR and KP511/IR. These were forward-looking targets, not guarantees.
- APADAZ’s approved labeling did not establish abuse deterrence by then-current measurement standards. Opioid products face controlled-substance, REMS, safety, regulatory, reimbursement, competition and public-policy risks. The filing also highlights clinical-development, manufacturing-supply, collaboration, patent and dilution risks.
- The company reported no material pending litigation and no accruals for commitments and contingencies. Disclosure controls were concluded effective at the reasonable-assurance level; no material change in internal control over financial reporting was reported for the quarter.
Investor verification priorities
- Verify the issuer identity: this filing is for KemPharm, Inc., although the request names Zevra Therapeutics, Inc.
- Confirm cash runway and burn assumptions, including the timing and net proceeds of the October offering and any further financing needed after the stated runway.
- Review the full terms, conversion and dilution effects of the Series A preferred stock and the remaining 2021 and Deerfield debt obligations.
- Track whether KVK achieves the APADAZ formulary milestone, pays the contingent amounts, funds commercialization and reaches the anticipated launch; assess resulting costs and profit-sharing economics.
- Validate the status and timing of clinical, regulatory and NDA milestones against the filing’s forward-looking estimates, and monitor whether trial results support the planned claims and approvals.