KemPharm, Inc. — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015. The supplied filing identifies the registrant as KemPharm, Inc.; it does not identify Zevra Therapeutics as the registrant. Financial statement amounts below are in millions unless otherwise stated.
Business context and reporting period
KemPharm was a clinical-stage pharmaceutical company developing proprietary prodrugs using its Ligand Activated Therapy platform. Its lead candidate, KP201/APAP, was being developed for acute pain; management intended to submit an NDA in the second half of 2015. The company had no approved products or revenue. Its Q1 financial statements do not reflect the April–May 2015 IPO.
Financial position and results
| Metric | Q1 2015 / March 31, 2015 | Comparable period / prior year-end |
|---|---|---|
| Revenue | $0 | $0 in Q1 2014 |
| Research and development expense | $2.119 | $1.038 in Q1 2014 |
| General and administrative expense | $0.977 | $0.534 in Q1 2014 |
| Operating loss | $3.096 | $1.572 in Q1 2014 |
| Net loss | $5.974 | $1.905 in Q1 2014 |
| Operating cash used | $3.999 | $0.888 in Q1 2014 |
| Cash and cash equivalents | $10.269 | $10.255 at December 31, 2014 |
| Total assets | $14.118 | $13.714 at December 31, 2014 |
| Total liabilities | $40.260 | $38.015 at December 31, 2014 |
Margins are not meaningful because the company had no revenue. Debt carrying amounts included $7.393 of convertible notes and $11.089 of term notes, net of discounts; Deerfield facility principal outstanding was $25 million, bearing 9.75% interest. The company also reported a $17.728 derivative and warrant liability and a $56.134 accumulated deficit. Cash from financing was $4.034, primarily the $4 million Series D-1 preferred-stock issuance; investing cash use was $0.021.
Changes, outlook, risks and unusual items
- Year-over-year net loss increased $4.069. R&D spending rose $1.081, primarily from higher contracted KP201/APAP research costs. G&A rose $0.443, chiefly IPO-related professional fees and increased personnel costs.
- Other expense increased to $2.871, including $0.477 debt discount/issuance-cost amortization, $0.632 interest expense and a $1.762 fair-value charge. The fair-value charge was a noncash increase in derivative and warrant liabilities.
- After quarter-end, the company completed an IPO and overallotment totaling 5,854,545 shares at $11 per share, with reported net proceeds of approximately $58.1 million. Preferred shares converted into common stock. Management said the IPO proceeds had not yet been used as of the report date.
- Management projected existing cash would fund operating and capital needs for at least 18 months, while warning that spending could exceed estimates and further financing may be needed. The filing reports no revenue or earnings guidance. Future results depend substantially on clinical progress, regulatory review and financing.
- Deerfield’s remaining $35 million facility availability was conditional on milestones, including FDA acceptance of the KP201/APAP NDA and, for later tranches, product approval. Debt covenants restrict certain transactions; repayment is scheduled for 2020, with earlier installments.
- A dispute with former financial adviser DeWaay Financial Network was scheduled for trial in August 2015. An adverse ruling could require fees tied to strategic transactions, including the IPO; the outcome was uncertain.
- The filing notes the auditor’s going-concern explanatory paragraph in the 2014 audit report, citing recurring losses and stockholders’ deficit. It also reports effective disclosure controls as of March 31, 2015. A May 2015 executive compensation action included a $965,999.93 cash bonus to the COO/CFO.
Most important facts for investors to verify
- KP201/APAP clinical and FDA progress, including whether the planned second-half 2015 NDA submission occurred and what abuse-deterrent labeling may be supported.
- Actual post-IPO cash use, operating runway, quarterly burn and any subsequent financing or Deerfield facility draws.
- Debt terms, covenant restrictions, dilution from convertible notes and warrants, and the fair-value assumptions behind the Level 3 liabilities.
- The outcome and potential financial impact of the DeWaay litigation.
- IPO proceeds figures: the filing repeatedly reports approximately $58.1 million net proceeds, while a risk-factor passage gives a different aggregate net-proceeds figure; reconcile against the prospectus and subsequent filings.