SEC Filing Summary
Issuer and period: This is KemPharm, Inc.’s unaudited Form 10-Q for the quarter ended June 30, 2018, filed August 10, 2018. The request identifies Zevra Therapeutics, Inc.; the filing itself is under KemPharm, Inc., so confirm the issuer/name mapping.
Business context
KemPharm was a clinical-stage specialty pharmaceutical company developing prodrugs using its LAT platform. FDA-approved APADAZ was its only approved product, but the company had generated no revenue and had not determined its commercialization strategy. Its pipeline included ADHD candidates KP415 and KP484 and pain candidates KP201/IR and KP511 formulations.
Financial results and liquidity
Amounts below are in millions of dollars unless stated otherwise. Revenue was zero in both the three and six months ended June 30, 2018 and in the comparable 2017 periods.
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Research and development expense | $10.5 | $4.7 | $22.1 | $8.8 |
| General and administrative expense | $3.4 | $3.6 | $6.6 | $6.8 |
| Operating loss | $(13.9) | $(8.2) | $(28.7) | $(15.6) |
| Net loss | $(10.0) | $(6.5) | $(36.2) | $(22.8) |
| Basic loss per share | $(0.65) | $(0.44) | $(2.41) | $(1.56) |
Gross and operating margins are not meaningful because the company had no revenue. Q2 net loss included a $5.6 million noncash fair-value gain on derivative and warrant liabilities; for the first half, the fair-value adjustment was a $4.2 million expense.
First-half operating cash use was $23.3 million, versus $16.0 million in 2017. Investing provided $24.9 million, principally from sales and maturities of marketable securities; financing provided $4.0 million, primarily from the at-the-market (ATM) stock offering. Cash, cash equivalents and restricted cash totaled $17.6 million at June 30; marketable securities were $11.7 million. Current assets were $30.9 million against current liabilities of $17.6 million.
At June 30, the company disclosed $93.0 million of convertible-note principal: $6.7 million of 9.75% Deerfield debt and $86.3 million of 5.50% notes due 2021. The balance sheet reported $90.2 million of convertible notes, net of discounts and other accounting adjustments, plus $11.9 million of derivative and warrant liabilities. Total liabilities were $117.5 million and stockholders’ deficit was $83.5 million.
Changes and notable developments
- Compared with Q2 2017, R&D expense rose $5.8 million, primarily due to KP415 clinical-trial costs; G&A expense fell $0.2 million. Net loss increased $3.5 million.
- For the first half, R&D expense increased $13.4 million and operating loss widened $13.1 million versus 2017, primarily reflecting increased development spending.
- On June 11, 2018, Deerfield converted $3.3 million of principal and approximately $0.2 million of accrued interest into 598,568 common shares, satisfying the June amortization payment. The company also sold 625,466 shares under its ATM, generating $4.1 million gross proceeds through June 30.
- After quarter-end, on July 9, the company announced positive top-line results from the KP415 pivotal ADHD efficacy trial; the filing listed a potential KP415 NDA submission in Q1 2019. The filing’s pipeline table also listed anticipated milestones for other candidates, including NDA submissions in 2019 or 2020; these were plans, not assured outcomes.
- The IPO-related class action was dismissed without prejudice on June 27, 2018. No contingency accrual was recorded at quarter-end.
Outlook, risks and contingencies
Management stated that recurring losses and negative operating cash flows raised substantial doubt about the company’s ability to continue as a going concern. Based on its operating plan, existing resources were not expected to fund operating expenses and capital investment through the first quarter of 2019. Management expected to rely on existing cash and marketable securities and additional financing, including the ATM and a broader Form S-3 registration statement; there was no assurance financing would be available on acceptable terms.
- Key risks include the need for substantial additional capital, potential dilution, debt service and refinancing needs, and Deerfield contractual restrictions. The $86.3 million 2021 notes mature in 2021; the Deerfield note is due in 2020.
- APADAZ’s FDA approval did not establish commercial success: the company had no product revenue, had not settled its launch strategy, and APADAZ’s approved labeling did not demonstrate abuse deterrence by then-current measurement standards. The product is subject to a REMS and deferred pediatric assessments.
- Clinical, regulatory, manufacturing, controlled-substance, reimbursement, competition, intellectual-property and collaboration risks could delay development or limit commercialization. The company relied on third parties, including sole-source suppliers for certain drug substances.
- Management reported disclosure controls and procedures were effective at the reasonable-assurance level and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Confirm the relationship between the KemPharm issuer named in this 2018 filing and Zevra Therapeutics, Inc.
- Check subsequent filings for actual cash runway, financing raised, ATM capacity used and any updated going-concern disclosures.
- Verify subsequent KP415 trial, NDA and regulatory outcomes against the milestones stated here, and determine whether APADAZ was commercialized and generated revenue.
- Review the terms, balances, maturity obligations and potential dilution associated with the Deerfield note, 2021 notes, warrants and equity awards.
- Assess whether APADAZ’s commercialization, REMS, post-marketing and pediatric obligations, and its lack of abuse-deterrent labeling, materially affected prospects.