KemPharm, Inc. — Form 10-Q Summary
Entity note: The supplied filing is for KemPharm, Inc., not an issuer named Zevra Therapeutics, Inc. Confirm the issuer identity and any corporate-name continuity before relying on this summary.
Business context and reporting period
The unaudited filing covers the three months ended March 31, 2016, with balance-sheet comparisons to December 31, 2015. KemPharm describes itself as a clinical-stage pharmaceutical company developing prodrugs using its Ligand Activated Therapy platform. It had no revenue and had not commercialized a product. Its lead candidate, Apadaz, is an immediate-release hydrocodone/acetaminophen product for short-term acute pain.
Financial performance, cash flow, debt and liquidity
| Metric | Q1 2016 | Q1 2015 or comparator |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $3.2 million | $2.1 million |
| General and administrative expense | $3.7 million | $1.0 million |
| Operating loss | $7.0 million | $3.1 million |
| Net loss | $2.9 million | $6.0 million |
| Net loss per share, basic and diluted | $0.20 | $2.50 |
| Net cash used in operating activities | $3.9 million | $4.0 million |
At March 31, 2016, cash and cash equivalents were $77.3 million and marketable securities were $33.7 million, totaling $111.0 million. Current assets were $111.4 million against current liabilities of $5.8 million. Total assets were $111.9 million; total liabilities were $123.4 million; and stockholders’ deficit was $11.5 million. Accumulated deficit was $107.8 million.
In February, KemPharm issued $86.25 million principal amount of 5.50% convertible notes due 2021, receiving approximately $82.8 million net proceeds. It used approximately $18.6 million to repay the Deerfield term notes in full. The balance sheet reported $90.1 million of convertible notes, net, and $27.5 million of derivative and warrant liabilities. The $2021 notes have an initial conversion price of approximately $17.11 per share; Deerfield convertible notes bear 9.75% interest. Management said existing cash and cash equivalents were expected to fund operating and capital needs for at least 21 months, based on its current operating plan.
Material changes versus the prior comparable period
- Operating expenses rose $3.9 million year over year. R&D increased $1.1 million, principally from higher personnel costs, fees, Apadaz advisory-committee preparation, stock compensation and third-party development costs. G&A increased $2.8 million, reflecting higher personnel and stock-compensation expense, professional fees and commercialization consulting.
- Net loss narrowed despite the higher operating loss, mainly because a $10.3 million noncash fair-value gain on derivative and warrant liabilities replaced a $1.8 million fair-value expense in Q1 2015. The quarter also included a $4.7 million debt-extinguishment loss and higher principal interest expense. The fair-value movement materially affects reported earnings and is not operating revenue.
- Cash rose $45.0 million during the quarter, primarily due to note-offering proceeds, partly offset by repayment of the term notes. Investing outflow was $14.7 million, mainly purchases of marketable securities; operating cash use was $3.9 million.
- Basic and diluted loss per share improved to $0.20 from $2.50, while weighted-average shares increased to 14.5 million from 2.4 million, reflecting the post-IPO capital structure. Per-share comparisons should be considered alongside this change.
Outlook, risks and unusual items
The FDA accepted the Apadaz NDA for priority review in February 2016 and set a June 9, 2016 PDUFA target action date. Subsequent to quarter-end, FDA advisory committees voted 16–4 in favor of approval for the proposed acute-pain indication, but 18–2 against abuse-deterrent labeling. The FDA was not bound by the committee recommendations. The filing identified the absence of abuse-deterrent labeling as a potential commercial risk.
Management expected continued significant R&D and operating losses, and stated that commercial revenue was not expected for at least 12 months, if at all. The company also said it would need additional funding to meet its objectives. Up to $35 million remained available under the Deerfield facility at March 31, subject to conditions; Deerfield’s commitment to provide additional tranches expired June 30, 2016. The company disclosed dependence on regulatory outcomes, financing availability, third-party manufacturers and the development of its pipeline. Other risks included opioid regulation and controlled-substance scheduling, competition, reimbursement, and possible dilution from convertible debt, warrants and equity awards.
The filing reported a $4.7 million loss on extinguishment of debt associated with the Deerfield term-note repayment and a $0.5 million write-off of deferred offering costs in operating cash-flow adjustments. The company also disclosed that its dispute with a former financial adviser was settled in January 2016 and the appeal dismissed; the settlement did not materially differ from the prior accrual. Management stated disclosure controls were effective as of March 31, 2016, with no material changes in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Confirm issuer identity: the filing names KemPharm, Inc.; the request names Zevra Therapeutics, Inc.
- Check the FDA’s final Apadaz decision, approved indication, labeling and controlled-substance schedule; advisory committee recommendations were not final agency action.
- Review the company’s actual cash burn and financing needs against the stated 21-month runway, including the conditions and expiry of Deerfield’s remaining borrowing capacity.
- Examine debt terms, conversion and repurchase provisions, potential dilution, and the sensitivity of earnings to Level 3 fair-value estimates.
- Assess whether the company can secure manufacturing, reimbursement and commercial capabilities and advance its other candidates without generating product revenue.