Filing summary: KemPharm, Inc. (10-Q)
Period: Quarter ended March 31, 2018; filed May 11, 2018. The filing identifies the registrant as KemPharm, Inc., although the request metadata names Zevra Therapeutics, Inc.
Business context and reporting period
KemPharm is a clinical-stage specialty pharmaceutical company developing prodrugs using its Ligand Activated Therapy platform. The FDA approved APADAZ for short-term acute pain in February 2018, but the company had not generated revenue and had not determined its commercialization strategy. KP415 and KP484 are clinical-stage ADHD candidates.
Financial results and liquidity
| Metric | Q1 2018 | Q1 2017 / comparison |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $11.6 million | $4.1 million; up $7.5 million |
| General and administrative expense | $3.1 million | $3.3 million; down $0.1 million |
| Operating loss | $14.8 million | $7.4 million |
| Net loss | $26.2 million | $16.3 million |
| Basic and diluted loss per share | $1.77 | $1.11 |
| Operating cash used | $14.1 million | $9.5 million |
R&D spending increased primarily because of KP415 and KP484 clinical trials. Net loss also included a $9.7 million noncash fair-value expense for derivative and warrant liabilities, compared with $7.2 million a year earlier. With no revenue, gross and operating margins are not meaningful.
At March 31, 2018, cash and cash equivalents were $8.8 million, restricted cash $1.1 million, marketable securities $25.9 million, and trade-date receivables $1.5 million. Current assets were $39.1 million and current liabilities $13.8 million. Convertible-note principal outstanding was $96.3 million: $10.0 million of Deerfield debt and $86.3 million of 5.50% notes due 2021. The balance sheet reports convertible notes net of discounts and other adjustments. Accumulated deficit was $190.9 million and stockholders’ deficit $79.7 million.
Cash, cash equivalents and restricted cash fell $2.1 million during the quarter. Investing provided $9.2 million, entirely from marketable-security maturities; financing provided $2.7 million, mainly net ATM proceeds. The company sold 446,111 shares through the ATM for $2.9 million gross proceeds during the quarter.
Changes, outlook, risks and unusual items
- Operating expenses doubled year over year, driven by higher R&D; net loss rose by $9.9 million. The increased fair-value liability expense contributed $2.5 million to the year-over-year increase in other expense.
- Management said existing resources were not expected to fund operating expenses and capital investment through the first quarter of 2019. Recurring losses and negative operating cash flows raised substantial doubt about the company’s ability to continue as a going concern within 12 months after the financial statements were issued. Management intended to use existing resources and seek financing, including through its ATM and broader registration statement; additional funding was not assured.
- Pipeline milestones stated in the filing included KP415 pivotal efficacy data expected mid-2018 and NDA submission targeted for Q1 2019; KP484 pivotal data and NDA submission were targeted for 2019. These are company expectations, not guarantees.
- APADAZ approval did not include abuse-deterrent labeling. The product is subject to a REMS and four deferred pediatric assessments. Commercial launch plans, revenue timing and commercial success remained uncertain.
- A shareholder class action alleging material misstatements and omissions in IPO materials was set to proceed in Iowa state court after the Supreme Court’s Cyan decision. The case was preliminary, damages were not quantified, and the company could not predict the outcome; no contingency accrual was recorded.
- Debt and financing risks include 9.75% Deerfield debt, the 2021 notes’ interest and repayment obligations, potential conversion dilution, and Deerfield consent and change-of-control provisions. Derivative and warrant liabilities are Level 3 fair-value estimates and can cause material quarterly earnings volatility.
- Management reported disclosure controls and procedures were effective at the reasonable-assurance level as of March 31, 2018, and no material change in internal control over financial reporting was identified during the quarter.
Important facts for investors to verify
- Whether the registrant and filing match the intended company: this document is for KemPharm, Inc., not a registrant named Zevra Therapeutics, Inc.
- Actual cash burn, financing proceeds and runway versus the stated expectation that resources would last only through Q1 2019.
- Progress and results for KP415 and KP484, and whether stated clinical and NDA milestones were achieved.
- APADAZ commercialization plans, post-approval requirements, reimbursement prospects and any resulting revenue.
- Updates on the IPO-related class action, debt terms, potential dilution and fair-value assumptions for Level 3 liabilities.