KemPharm, Inc. — Q1 2021 Form 10-Q
Issuer note: The filing identifies the company as KemPharm, Inc. (ticker KMPH), although the request metadata names Zevra Therapeutics, Inc. This summary follows the filing.
Business context and reporting period
The unaudited quarter ended March 31, 2021. KemPharm develops prodrugs using its Ligand Activated Therapy technology. Its portfolio includes FDA-approved AZSTARYS for ADHD, approved March 2, and APADAZ for acute pain, as well as development candidates KP484, KP879 and KP1077. AZSTARYS is licensed to Commave; Corium is expected to lead U.S. commercialization. APADAZ is licensed to KVK.
Financial results and liquidity
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Revenue | $12.1 million | $2.1 million |
| Operating expenses | $5.2 million | $5.9 million |
| Operating income (loss) | $7.0 million | $(3.8) million |
| Net loss | $(10.3) million | $(5.8) million |
| Net loss attributable to common stockholders | $(47.7) million | $(5.8) million |
| Basic and diluted loss per share attributable to common stockholders | $(2.49) | $(1.92) |
| Net cash used in operating activities | $(2.6) million | $(2.0) million |
- Revenue rose $10.0 million, primarily from a $10.0 million AZSTARYS FDA-approval milestone; the balance included consulting and related reimbursements. The filing reports no product-sales revenue.
- Operating income was positive, but a $16.9 million debt-extinguishment loss drove the quarterly net loss. A $37.4 million deemed dividend from the warrant inducement increased the loss attributable to common stockholders; it was not an operating expense.
- Cash and cash equivalents were $75.9 million at quarter-end, up from $4.2 million at December 31, 2020; including restricted cash, the balance was $76.0 million. Operating cash use was partly offset by $74.3 million of financing cash flow, primarily offering and warrant proceeds, after debt repayments and financing costs.
- The company reported no convertible notes outstanding at March 31, after paying $8.0 million in February to retire the remaining Facility Agreement debt and terminate its security interests. It still had a $0.8 million PPP loan outstanding, subject to a pending forgiveness application, and $1.8 million of operating lease liabilities.
- Total assets were $90.4 million, total liabilities $6.2 million, and stockholders’ equity $84.3 million, compared with a $66.4 million stockholders’ deficit at year-end 2020. Accounts and other receivables were $11.3 million, including a $10.0 million KP415-related receivable.
- Shares issued and outstanding increased from 4.5 million at year-end to 28.5 million at March 31. The company also reported 9.5 million common shares reserved for outstanding warrants, indicating potential additional dilution.
Material changes versus the prior-year quarter
- Revenue increased to $12.1 million from $2.1 million, principally due to the AZSTARYS approval milestone. Operating results improved from a $3.8 million loss to $7.0 million income.
- Net loss nevertheless increased to $10.3 million from $5.8 million, primarily reflecting the $16.9 million debt-extinguishment loss; interest expense was lower following the debt restructuring and payoff.
- Financing activities shifted from $1.0 million of net proceeds in Q1 2020 to $74.3 million in Q1 2021. The public offering, warrant exercises and inducement transaction materially increased cash and the share count.
Outlook, commentary and risks
- Management believed existing cash would fund operations for at least 12 months after the May 13, 2021 filing date. The estimate excluded projected revenues, including royalties and milestones, and management cautioned that additional funding could be needed if revenue or financing falls short.
- Management expected continued significant expenses and minimal positive or negative operating cash flow for the foreseeable future; it did not provide numerical revenue or earnings guidance. Corium expected AZSTARYS U.S. availability as early as the second half of 2021.
- After quarter-end, the April 8 KP415 amendment provided for a $10.0 million payment tied to AZSTARYS approval and a further $10.0 million payment following DEA scheduling of SDX. The filing says the second milestone was earned May 7 and payable within 30 days. The amendment increased remaining AZSTARYS regulatory and sales milestones to up to $590 million; these are contingent, not guaranteed revenue.
- Key risks include the uncertain commercial uptake of AZSTARYS and APADAZ, dependence on licensees and third-party manufacturers, controlled-substance regulation, competition and reimbursement, clinical-development risks, and possible future capital needs and dilution. COVID-19 could disrupt trials, supply and regulatory timelines.
- The company had applied for forgiveness of its PPP loan and was awaiting a decision; it warned forgiveness was not assured. It reported no accrual for legal proceedings or other commitments and contingencies, and no pending litigation expected to have a material adverse effect. Management concluded disclosure controls were effective as of March 31.
Important facts for investors to verify
- Confirm the issuer identity: the filing is for KemPharm, Inc., not Zevra Therapeutics, Inc.
- Check receipt and accounting of the two $10.0 million post-quarter AZSTARYS-related milestone payments, including the DEA scheduling payment, and the applicable Aquestive royalty.
- Track AZSTARYS launch timing, prescriptions, sales, reimbursement and the resulting royalties and milestone eligibility; Q1 revenue did not reflect product sales.
- Assess cash runway against operating outflows, contingent milestone timing, the PPP forgiveness outcome and any need for additional financing.
- Review warrant exercises, remaining warrant overhang and subsequent share counts for dilution; verify the extent to which the reported $10.0 million receivable was collected.