ZEVRA THERAPEUTICS, INC. annual report, FY2021

Business context and reporting period

This is KemPharm, Inc.’s Form 10-K for the fiscal year ended December 31, 2021, filed March 30, 2022. The request identifies Zevra Therapeutics, Inc., but the filing itself names KemPharm and reports under ticker KMPH; confirm the intended issuer before relying on this summary. KemPharm develops proprietary prodrugs for CNS and rare diseases. Its approved products were AZSTARYS for ADHD, launched in the U.S. in Q3 2021 by partner Corium, and APADAZ for short-term acute pain, commercialized by KVK with limited adoption reported. Its pipeline included KP1077 for idiopathic hypersomnia and narcolepsy and KP879 for stimulant use disorder.

Financial performance and liquidity

Amounts below are in U.S. dollars; financial statement figures are in millions unless otherwise noted.

Revenue rose $15.4 million, principally from the KP415 license agreement and Corium consulting services. Operating expenses were $20.9 million, including $10.2 million of R&D and $8.7 million of general and administrative expense. The filing does not provide a clear gross-margin measure. Operating cash flow turned positive, but included a $16.1 million noncash loss on debt extinguishment; cash flow should therefore not be read as recurring operating cash generation. Investing cash outflow was $15.5 million, mainly purchases of long-term investments, and financing provided $113.1 million.

Net loss attributable to common stockholders includes $54.3 million of deemed dividends from warrant inducement transactions; these were not operating expenses or cash dividends. The reported basic and diluted loss per share was $2.11 in 2021 versus $3.21 in 2020.

At December 31, 2021, the company reported no convertible notes outstanding after repaying its remaining facility debt in February 2021. It had $1.6 million of operating lease liabilities and $0.02 million of finance lease liabilities. Current assets were $115.1 million and current liabilities $4.2 million. Management estimated existing cash, cash equivalents and long-term investments would fund operations through and beyond 2025, excluding projected royalties and milestones; that estimate depends on assumptions and is not a guarantee.

Material changes versus 2020

• Revenue more than doubled, and operating results improved to income from operations, while the company still reported a GAAP net loss.
• The company raised substantial capital through a January public offering and warrant exercises, and repaid and terminated its secured facility debt. Cash and investments increased sharply; common shares outstanding rose from 4.5 million at year-end 2020 to 35.0 million at year-end 2021.
• AZSTARYS received FDA approval in March 2021; SDX received Schedule IV classification in May. Commave paid $10 million for approval and $10 million following DEA scheduling under the amended license agreement.
• R&D expense rose $1.3 million to $10.2 million, with KP879 accounting for $1.6 million of identified outsourced development costs. The 2020 severance expense of $0.8 million did not recur.
• The company began a share repurchase program in December 2021 and repurchased 320,161 shares for approximately $2.8 million during the year.

Outlook, commentary and principal risks

Management expected continued significant expenses and minimal positive or negative operating cash flows for the foreseeable future, with profitability uncertain. In January 2022, the company selected KP1077 for development in idiopathic hypersomnia and narcolepsy and said it expected to begin a U.S. Phase 2 trial as early as the second half of 2022. The filing also describes an anticipated IND submission as early as Q2 2022; verify the program’s precise regulatory and trial status. Final Phase 1 KP879 data were reported in Q1 2022. The filing provides no numerical revenue or earnings guidance.

Key risks include dependence on partners Commave and KVK and on milestone, royalty and consulting receipts; uncertain commercial uptake of AZSTARYS and limited APADAZ adoption; clinical, regulatory, manufacturing and controlled-substance scheduling risks; reliance on third-party manufacturers, including sole-source supply; competition, reimbursement and pricing pressure; and the need for additional funding if actual cash use or development plans differ from forecasts. The company also disclosed dilution from equity and warrant transactions and possible future share issuance. It had a $75 million at-the-market facility available but reported no sales under it by year-end. The $50 million repurchase authorization is discretionary and may be suspended or discontinued.

The 2021 audit opinion was unqualified, and the auditor reported no critical audit matters. Management concluded disclosure controls and internal control over financial reporting were effective at December 31, 2021; the auditor did not attest to internal control effectiveness because the company was a non-accelerated filer. The company reported no pending litigation expected to have a material adverse effect and no contingency accrual at year-end.

Important facts for investors to verify

• Confirm the issuer: the supplied request says Zevra Therapeutics, while this filing is for KemPharm, Inc. (KMPH).
• Reconcile the $10.4 million operating cash inflow with the $16.1 million noncash debt-extinguishment loss and assess cash burn excluding unusual items.
• Track AZSTARYS prescription and payer trends, royalties and sales milestones, and the commercial progress of APADAZ.
• Confirm KP1077’s IND, trial phase and expected Phase 2 start, and review final KP879 Phase 1 results.
• Assess the cash runway assumptions, future R&D commitments, partner receipts, remaining warrant overhang and potential equity dilution.