KemPharm, Inc. — FY2015 Form 10-K
Filing identity: The supplied filing is for KemPharm, Inc. (NASDAQ: KMPH), not Zevra Therapeutics, Inc. It covers the fiscal year ended December 31, 2015; it is an annual report, not a standalone Q4 report. Financial amounts below are in U.S. dollars.
Business context and reporting period
KemPharm was a clinical-stage specialty pharmaceutical company developing prodrugs using its Ligand Activated Therapy platform. Its lead candidate, KP201/APAP, was an abuse-deterrent immediate-release hydrocodone/acetaminophen treatment for short-term acute pain. The company had no approved products and generated no revenue in 2015.
In December 2015, KemPharm submitted a 505(b)(2) NDA for KP201/APAP. After year-end, FDA accepted the application for priority review, with a PDUFA target action date of June 9, 2016. These are subsequent developments, not 2015 results.
Financial performance and liquidity
| Metric | FY2015 | FY2014 |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $13.9 million | $11.9 million |
| General and administrative expense | $8.9 million | $4.5 million |
| Total operating expenses / operating loss | $22.8 million / $(22.8) million | $16.4 million / $(16.4) million |
| Net loss | $(54.7) million | $(24.5) million |
| Net loss per share, basic and diluted | $(7.42) | $(10.27) |
| Net cash used in operating activities | $(20.3) million | $(14.7) million |
The 2015 net loss included $31.8 million of other expenses, including a $27.3 million noncash fair-value charge on derivative and warrant liabilities and $4.6 million of interest and debt-cost amortization. The larger loss per share in 2014 partly reflects a lower weighted-average share count following the 2015 IPO.
At December 31, 2015, cash and cash equivalents were $32.3 million and marketable securities were $19.0 million; total current assets were $54.1 million versus current liabilities of $8.3 million. Current assets therefore exceeded current liabilities, but the company had no operating revenue and continued to use cash. Net cash used in investing was $19.1 million, primarily purchases of marketable securities; net cash provided by financing was $61.5 million, mainly IPO proceeds.
Year-end total liabilities were $65.8 million, including $9.2 million of convertible notes and $13.8 million of term notes, net of discounts, plus $37.8 million of derivative and warrant liabilities. Stockholders’ deficit was $10.1 million. The filing reports no gross margin because there was no revenue.
Material changes versus FY2014
- Net loss increased by $30.2 million, chiefly because fair-value expenses rose by $20.1 million and the prior-year $1.9 million debt-extinguishment gain did not recur.
- Operating expenses rose $6.4 million. R&D increased $2.0 million as development expanded to KP511 and KP415, while G&A rose $4.4 million, including increased staffing, stock compensation, marketing and public-company costs.
- Operating cash use increased by $5.6 million. Cash and cash equivalents increased to $32.3 million, supported by financing rather than operating cash generation.
- The April–May 2015 IPO generated $59.9 million in net proceeds after underwriting discounts and commissions; $9.4 million had been used through year-end. Marketable securities reached $19.0 million.
Outlook, management commentary and key risks
- Management estimated year-end cash and cash equivalents would fund operating and capital requirements for at least 21 months, while also warning that substantial additional funding would be needed. It expected losses and expenses to increase.
- In February 2016, the company issued $86.25 million of 5.50% senior convertible notes due 2021, receiving approximately $82.8 million net proceeds, and used approximately $18.6 million to repay the $15 million Deerfield term note and related amounts. The remaining Deerfield convertible note and facility terms continued to apply.
- Management anticipated potential human proof-of-concept data for pipeline candidates in 2016–2017; projected milestones included KP511/ER NDA submission in 2018, KP415 in 2019 and KP201/IR (APAP-free) as early as 2017. These were plans, not assured outcomes.
- KP201/APAP’s approval, timing and abuse-deterrent label were uncertain. A Paragraph IV patent challenge could delay approval until June 10, 2017 or later if litigation were initiated; the FDA had also indicated likely advisory committee review. DEA scheduling was required before launch, and the company sought Schedule III treatment although it expected Schedule II was possible.
- Commercialization depended on FDA approval, labeling, DEA scheduling, manufacturing readiness, reimbursement and market acceptance. The company lacked its own sales and manufacturing infrastructure and relied on third parties, including a sole-source KP201 bulk supplier.
- Other material risks included continuing cash burn and financing needs; substantial debt and potential dilution; clinical, regulatory, patent and controlled-substance risks; competition and pricing pressure; and possible REMS, boxed warnings or post-marketing requirements.
- The DFN financial-advisor litigation was settled in January 2016 and the appeal dismissed. The company stated it knew of no pending litigation expected to materially adversely affect its financial condition or results.
Important facts for investors to verify
- Confirm the issuer and ticker: this filing identifies KemPharm, Inc. and KMPH, not Zevra Therapeutics.
- Review the later FDA decision, approved indication and abuse-deterrent label for KP201/APAP, as well as any advisory committee outcome and DEA scheduling.
- Check updated cash, cash burn, financing runway, debt balances and conversion or dilution terms after the 2021 notes issuance and Deerfield repayment.
- Verify whether stated clinical and regulatory pipeline milestones were met, delayed or changed, and whether additional trials were required.
- Assess manufacturing supply arrangements, reimbursement prospects and commercialization plans, including the potential impact of JMI royalties and KP415-related rights held by Shire and MonoSol.