Zevra Therapeutics(ZVRA) - 2022 Q3 - Quarterly Report

FORM 10-Q Filer Information Details KemPharm, Inc.'s corporate identity, stock market listing, filing status, and common stock outstanding - KemPharm, Inc. is incorporated in Delaware with Commission File No. 001-36913[2] - Common Stock ($0.0001 par value per share) is traded on The Nasdaq Stock Market LLC (Nasdaq Global Select Market) under the symbol KMPH[2] - The registrant is classified as a Non-accelerated filer and a Smaller reporting company[3] - Total shares of common stock outstanding as of November 8, 2022, were 34,504,862[3] SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS Forward-Looking Statements Disclosure Warns that the report contains forward-looking statements subject to risks and not routinely updated - Forward-looking statements are identified by terms such as 'may,' 'will,' 'expects,' 'plans,' 'anticipates,' 'could,' 'intends,' 'target,' 'projects,' 'contemplates,' 'believes,' 'estimates,' 'predicts,' 'assume,' 'intend,' 'potential,' 'continue' or other similar words or their negatives[8] - The outcome of events described in forward-looking statements is subject to risks, uncertainties, and other factors detailed in Part II, Item 1A. 'Risk Factors' of this Quarterly Report on Form 10-Q and Part I, Item 1A. 'Risk Factors' of the Annual Report on Form 10-K for the fiscal year ended December 31, 2021[8][9] - The company does not assume any intent to update any forward-looking statements after the date on which the statement is made, whether as a result of new information, future events or circumstances or otherwise, except as required by law[9] NOTE REGARDING COMPANY REFERENCE Clarifies company terminology and proprietary trademark rights used throughout the report - The terms 'KemPharm,' 'Company,' 'we,' 'us' and 'our' in this Quarterly Report on Form 10-Q refer to KemPharm, Inc[11] - KemPharm, Inc. has proprietary rights to trademarks including KemPharm, LAT, and the KemPharm logo[11] PART I — FINANCIAL INFORMATION ITEM 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Provides unaudited condensed consolidated financial statements and detailed notes on business, policies, and financial instruments UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS Total assets decreased to $119.6 million, liabilities increased to $25.8 million, and equity decreased to $93.8 million Balance Sheet Highlights (in thousands): | Metric | Sep 30, 2022 | Dec 31, 2021 | | :-------------------------- | :----------- | :----------- | | Cash and cash equivalents | $70,059 | $112,346 | | Short-term investments | $5,832 | $— | | Accounts and other receivables | $6,583 | $1,528 | | Total current assets | $85,133 | $115,056 | | Long-term investments | $31,463 | $15,422 | | Total assets | $119,551 | $132,941 | | Accounts payable and accrued expenses | $4,279 | $3,038 | | Current portion of discount and rebate liabilities | $2,825 | $— | | Total current liabilities | $8,431 | $4,230 | | Line of credit payable | $12,800 | $— | | Discount and rebate liabilities, less current portion | $3,509 | $— | | Total liabilities | $25,757 | $5,823 | | Total stockholders' equity | $93,794 | $127,118 | UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS Net loss increased to $6.6 million for three months and $32.5 million for nine months, driven by higher operating expenses and lower revenue Statements of Operations (in thousands, except per share amounts): Three Months Ended September 30: | Metric | 2022 | 2021 | Change | | :------------------------------------ | :----- | :----- | :----- | | Revenue, net | $2,874 | $1,965 | $909 | | Cost of revenue | $141 | $0 | $141 | | Research and development | $5,385 | $2,239 | $3,146 | | General and administrative | $3,974 | $1,948 | $2,026 | | Total operating expenses | $9,500 | $4,187 | $5,313 | | Loss from operations | $(6,626) | $(2,222) | $(4,404) | | Total other (expense) income | $(23) | $463 | $(486) | | Net loss | $(6,616) | $(1,759) | $(4,857) | | Net loss attributable to common stockholders | $(6,616) | $(1,759) | $(4,857) | | Basic and diluted net loss per share | $(0.19) | $(0.05) | $(0.14) | Nine Months Ended September 30: | Metric | 2022 | 2021 | Change | | :------------------------------------ | :----- | :----- | :----- | | Revenue, net | $8,139 | $26,068 | $(17,929) | | Cost of revenue | $200 | $2,000 | $(1,800) | | Research and development | $13,262 | $7,352 | $5,910 | | General and administrative | $10,266 | $6,145 | $4,121 | | Acquired in-process research and development | $17,663 | $— | $17,663 | | Total operating expenses | $41,391 | $15,497 | $25,894 | | (Loss) income from operations | $(33,252) | $10,571 | $(43,823) | | Loss on extinguishment of debt | $— | $(16,096) | $16,096 | | Total other (expense) income | $(22) | $(16,423) | $16,401 | | Net loss | $(32,522) | $(5,852) | $(26,670) | | Deemed dividend | $— | $(54,342) | $54,342 | | Net loss attributable to common stockholders | $(32,522) | $(60,194) | $27,672 | | Basic and diluted net loss per share | $(0.94) | $(2.16) | $1.22 | UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) Comprehensive loss was $6.4 million for three months and $32.3 million for nine months, including foreign currency adjustments Statements of Comprehensive Income (Loss) (in thousands): Three Months Ended September 30: | Metric | 2022 | 2021 | | :------------------------------------ | :----- | :----- | | Net loss attributable to common stockholders | $(6,616) | $(1,759) | | Foreign currency translation adjustment | $201 | $— | | Comprehensive loss | $(6,415) | $(1,759) | Nine Months Ended September 30: | Metric | 2022 | 2021 | | :------------------------------------ | :----- | :----- | | Net loss attributable to common stockholders | $(32,522) | $(60,194) | | Foreign currency translation adjustment | $201 | $— | | Comprehensive loss | $(32,321) | $(60,194) | UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Stockholders' equity decreased to $93.8 million due to net losses and share repurchases, contrasting with 2021's equity-raising activities Stockholders' Equity Changes (in thousands): | Metric | Jan 1, 2022 | Sep 30, 2022 | Change | | :-------------------------- | :---------- | :----------- | :----- | | Total Stockholders' Equity | $127,118 | $93,794 | $(33,324) | | Net loss | $(32,522) | $(32,522) | $— | | Stock-based compensation expense | $3,339 | $3,339 | $— | | Shares repurchased | $(4,723) | $(4,723) | $— | | Accumulated other comprehensive income | $201 | $201 | $— | - In 2021, significant activities included the issuance of common stock in connection with a Public Offering ($49.3 million), exercise of warrants in Inducement Transactions ($40.4 million and $35.5 million), and a deemed dividend of $54.3 million related to Inducement Transactions[23][169][172] UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Net cash decreased by $42.3 million, driven by operating and investing outflows, contrasting with prior year's financing-driven increase Summary of Cash Flows (Nine Months Ended September 30, in thousands): | Cash Flow Activity | 2022 | 2021 | | :------------------------------------ | :--------- | :--------- | | Net cash (used in) provided by operating activities | $(14,255) | $11,287 | | Net cash used in investing activities | $(36,656) | $(85) | | Net cash provided by financing activities | $8,609 | $115,979 | | Effect of exchange rate changes on cash and cash equivalents | $15 | $— | | Net (decrease) increase in cash and cash equivalents | $(42,287) | $127,181 | | Cash and cash equivalents, beginning of period | $112,346 | $4,322 | | Cash and cash equivalents, end of period | $70,059 | $131,503 | - Net cash used in investing activities for the nine months ended September 30, 2022, was primarily due to $14.1 million for acquisitions (Arimoclomol Purchase Agreement) and $23.8 million for purchases of investments[25][287] - Net cash provided by financing activities for the nine months ended September 30, 2021, was significantly driven by $49.3 million from a Public Offering, $41.4 million from the January 2021 Inducement Transaction, and $36.8 million from the June 2021 Inducement Transaction[25][290] NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Provides detailed disclosures on business, accounting policies, debt, equity, financial instruments, and contingencies A. Description of Business, Basis of Presentation and Significant Transactions Details KemPharm's biotechnology focus, product portfolio, arimoclomol acquisition, and significant 2021 financing and 2022 share repurchase activities - KemPharm, Inc. is a biotechnology company focused on the discovery, development, and commercialization of novel treatments for rare central nervous system (CNS) and neurodegenerative diseases, lysosomal storage disorders, and related treatment areas[27] - The company's portfolio includes arimoclomol (investigational for Niemann-Pick disease type C, NPC), KP1077 (developing for idiopathic hypersomnia, IH, and narcolepsy), AZSTARYS® (FDA-approved for ADHD, commercialized by Corium), and APADAZ® (FDA-approved for pain, commercialized by KVK-Tech, Inc.)[27][196] Arimoclomol Acquisition (May 2022, in thousands): | Item | Amount | | :------------------------------------ | :------- | | Cash payment | $12,800 | | Assumed reserve liability | $5,200 | | Total consideration | $18,000 | | Direct transaction costs | $1,290 | | Total purchase price allocated | $19,290 | | IPR&D expensed | $17,663 | - In January 2021, the company closed a Public Offering, generating approximately $52.4 million in aggregate gross proceeds before deducting underwriting discounts and commissions and offering expenses[39] - A Share Repurchase Program was initiated on December 20, 2021, authorizing repurchases of up to $50 million of common stock through December 31, 2023. As of September 30, 2022, 909,953 shares were repurchased for approximately $7.5 million[44][253] B. Summary of Significant Accounting Policies Outlines key accounting policies, including revenue recognition for licensing, consulting, and Arimoclomol EAP, and new accounting standard adoption - Revenue recognition is in accordance with ASC 606, requiring identification of performance obligations, determination of transaction price, allocation to obligations, and recognition when control of goods/services is transferred[48][50][78] - Milestone payments are recognized as revenue when it is probable that a significant reversal of cumulative revenue will not occur, with non-operational developmental and regulatory approvals generally considered probable only upon receipt[56] Revenue Recognition by Source (in thousands): | Source | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | AZSTARYS License Agreement | $200 | Minimal | $400 | $20,000 | | Corium Consulting Agreement | $— | $2,000 | $3,500 | $5,900 | | Other Consulting Arrangements | $300 | $— | $600 | $200 | | Arimoclomol EAP (net of clawback) | $2,300 | $— | $3,200 | $— | - Revenue from the Arimoclomol EAP is recognized net of a clawback liability, which was $1.2 million for the three months and $1.7 million for the nine months ended September 30, 2022. The total estimated reserve liability for Arimoclomol EAP was $6.3 million as of September 30, 2022[86][87] - The adoption of ASU 2020-06 (Accounting for Convertible Instruments and Contracts in an Entity's Own Equity) and ASU 2021-04 (Issuer's Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options) did not have a material impact on the company's unaudited condensed financial statements and disclosures[90][91] C. Debt Obligations Details historical debt repayment, PPP loan forgiveness, and the establishment of a new $20.0 million revolving Line of Credit in May 2022 - As of September 30, 2022, the company had no convertible notes outstanding, as all were repaid and the Deerfield Facility Agreement was terminated in the first quarter of 2021[93][139][255] - The Deerfield Facility Agreement, a $60 million multi-tranche credit facility, involved a Term Note and a Deerfield Convertible Note, which underwent several amendments to defer payments and adjust interest rates[94][95][256][257] - The $86.3 million 5.50% Senior Convertible Notes due 2021 were exchanged for common stock or senior secured convertible promissory notes in multiple transactions between 2018 and 2020[100][105][262] - A $0.8 million PPP Loan received in April 2020 was fully forgiven by the U.S. Small Business Administration in May 2021[143][250] - On May 31, 2022, the company entered into a $20.0 million revolving Line of Credit with Ameris Bank, bearing interest at SOFR plus 1.60%[144][280] - As of September 30, 2022, $12.8 million was drawn from the Line of Credit to finance the Arimoclomol Purchase Agreement, secured by a $12.8 million certificate of deposit. An additional $7.2 million is held in a separate certificate of deposit, also pledged as collateral[146][281] D. Commitments and Contingencies Discusses routine legal proceedings and confirms no material adverse litigation or accruals for commitments and contingencies - The company is involved in various legal proceedings arising in the normal course of business, but believes no pending litigation would reasonably be expected to have a material adverse effect on its results of operations or financial condition[148][305] - As of September 30, 2022, and December 31, 2021, no accruals have been made related to commitments and contingencies[148] E. Preferred Stock and Warrants Details authorized preferred stock, elimination of prior series, and conversion of Series B-2 shares into common stock - As of September 30, 2022, and December 31, 2021, the Company had 10,000,000 shares of authorized, unallocated, and unissued preferred stock[149] - In June 2021, Certificates of Elimination were filed for Series A, Series B-1, and Series B-2 Convertible Preferred Stock, eliminating them from the Company's Certificate of Incorporation[150] - In March 2021, all shares of Series B-2 Preferred Stock converted into 4,842,699 shares of common stock[155] F. Common Stock and Warrants Covers common stock outstanding, repurchase activity, and various warrants, including their classification and impact on deemed dividends Common Stock Outstanding: | Date | Shares Outstanding | | :-------------------- | :----------------- | | Sep 30, 2022 | 34,501,144 | | Dec 31, 2021 | 35,005,640 | Common Stock Activity (Nine Months Ended Sep 30, 2022, in shares): | Activity | Shares | | :------------------------------------ | :------- | | Balance as of January 1, 2022 | 35,005,640 | | Common stock issued as compensation to third-parties | 11,030 | | Common stock issued as a result of the Employee Stock Purchase Plan | 54,787 | | Common stock repurchased as a result of the Stock Repurchase Plan | (589,792) | | Balance as of September 30, 2022 | 34,501,144 | - The Deerfield Warrant is classified as a liability and stated at fair value at each reporting period, with its exercise price adjusted due to anti-dilution provisions triggered by the January 2021 and June 2021 Inducement Transactions[159][160] - The KVK Warrant is recorded as a contract asset (contra-revenue) and a derivative liability, measured at fair value using a probability-weighted Black-Scholes option pricing model[162] - The January 2021 and June 2021 Warrant Exercise Inducement Transactions resulted in deemed dividends of $37.4 million and $16.9 million, respectively, which are added to net loss to arrive at net loss attributable to common stockholders[169][172] G. Stock-Based Compensation Details equity incentive plans, ESPP activity, and increased stock-based compensation expense to $3.3 million for nine months - The Amended and Restated 2014 Equity Incentive Plan (A&R 2014 Plan) had a maximum of 6,889,885 shares of common stock reserved for issuance as of September 30, 2022, with an automatic annual increase of 4% of outstanding capital stock[174] - The Employee Stock Purchase Plan (ESPP) was approved in June 2021, with a maximum of 1,500,000 shares. As of September 30, 2022, 54,787 shares have been issued under the ESPP[176] Stock-Based Compensation Expense (in thousands): | Category | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Research and development | $360 | $201 | $1,093 | $630 | | General and administrative | $551 | $419 | $2,246 | $983 | | Total stock-based compensation expense | $911 | $620 | $3,339 | $1,613 | H. Fair Value of Financial Instruments Discusses fair value measurements of financial instruments using a three-tier hierarchy, detailing liabilities and assets by level - The company uses a three-tier fair value hierarchy (Level 1: quoted market prices, Level 2: other observable inputs, Level 3: unobservable inputs) to classify and disclose assets and liabilities measured at fair value[180][182] Fair Value Measurements (in thousands) as of September 30, 2022: | Item | Balance | Level 1 | Level 2 | Level 3 | | :------------------------------------ | :-------- | :------ | :------ | :------ | | Liabilities: | | | | | | Deerfield Warrant liability | $30 | $— | $— | $30 | | Embedded Warrant Put Option | $4 | $— | $— | $4 | | KVK Warrant liability | $1 | $— | $1 | $— | | Total liabilities | $35 | $— | $1 | $34 | | Assets: | | | | | | U.S. government-sponsored agency securities | $7,171 | $— | $7,171 | $— | | Certificates of deposit | $20,475 | $20,475 | $— | $— | | U.S. Treasury securities | $9,649 | $9,649 | $— | $— | | Total assets | $37,295 | $30,124 | $7,171 | $— | - The Deerfield Warrant liability and embedded Warrant Put Option are valued using a Monte Carlo simulation, with significant unobservable inputs (Level 3) including estimated enterprise value, timing of liquidity/fundamental change events, and a present value discount rate[183][184] Reconciliation of Derivative and Warrant Liability (Level 3, in thousands): | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Balance as of beginning of period | $56 | $666 | $306 | $255 | | Adjustment to fair value | $(22) | $(305) | $(272) | $106 | | Balance as of end of period | $34 | $361 | $34 | $361 | I. Net Loss Per Share Basic and diluted net loss per share were identical due to net loss position and anti-dilutive participating securities - Basic and diluted net loss per share were the same for all periods presented because the company was in a net loss position, and all outstanding stock options and warrants were anti-dilutive[189] - The two-class method was not used for EPS calculation as holders of participating securities have no obligation to fund losses[187][189] Net Loss Attributable to Common Stockholders Per Share (Basic and Diluted): | Period | Net Loss (in thousands) | Weighted Average Shares (in thousands) | Net Loss Per Share | | :-------------------------- | :---------------------- | :----------------------------------- | :----------------- | | 3 Months Ended Sep 30, 2022 | $(6,616) | 34,495 | $(0.19) | | 3 Months Ended Sep 30, 2021 | $(1,759) | 35,218 | $(0.05) | | 9 Months Ended Sep 30, 2022 | $(32,522) | 34,483 | $(0.94) | | 9 Months Ended Sep 30, 2021 | $(60,194) | 27,905 | $(2.16) | Anti-Dilutive Securities Excluded from EPS Calculation (in shares): | Type of Security | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Awards under equity incentive plans | 2,463,509 | 1,169,379 | 2,463,509 | 1,169,379 | | Common stock warrants | 4,252,600 | 4,221,350 | 4,252,600 | 4,221,350 | | Total securities excluded | 6,716,109 | 5,390,729 | 6,716,109 | 5,390,729 | J. Leases Details operating and finance leases for facilities and equipment, with total lease costs of $0.5 million and $1.4 million in liabilities - The company has operating and finance leases for office space, laboratory facilities, and various laboratory equipment, furniture, office equipment, and leasehold improvements, with remaining lease terms of less than 1 year to approximately 4 years[192] Total Lease Costs (in thousands): | Period | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total lease costs | $173 | $149 | $478 | $510 | Lease Liabilities and Assets (in thousands) as of September 30, 2022: | Item | Amount | | :------------------------------------ | :------- | | Operating lease right-of-use assets | $1,068 | | Current portion of operating lease liabilities | $474 | | Operating lease liabilities, less current portion | $956 | | Total operating lease liabilities | $1,430 | | Weighted Average Remaining Operating Lease Term | 3 years | | Weighted Average Operating Lease Discount Rate | 7.2% | ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Analyzes financial condition and operations, focusing on strategic initiatives, arimoclomol acquisition, pipeline development, and liquidity - KemPharm is a biotechnology company focused on the discovery, development, and commercialization of novel treatments for rare central nervous system (CNS) and neurodegenerative diseases, lysosomal storage disorders, and related treatment areas[196] - The company's strategic focus guides business development efforts to expand its pipeline, targeting assets in Phase 2 or Phase 3 clinical trials within neurology, neurodegenerative diseases, psychiatric disorders, and other rare diseases[197][208] - In May 2022, KemPharm acquired all assets and operations related to arimoclomol from Orphazyme for a cash payment of $12.8 million and assumed an estimated reserve liability of $5.2 million, expensing $17.7 million as acquired in-process research and development (IPR&D)[198][241][245] - Key product candidates include arimoclomol for Niemann-Pick disease type C (NDA resubmission targeted as early as Q3 2023) and KP1077 for idiopathic hypersomnia (IH) and narcolepsy (Phase 2 clinical trials anticipated as early as YE 2022)[201][204][213] - AZSTARYS (for ADHD) was FDA approved in March 2021 and commercially launched in the U.S. during Q3 2021 by Corium. Its primary active pharmaceutical ingredient, SDX, was classified as a Schedule IV controlled substance by the DEA in May 2021[205][206] - The company expects to incur significant expenses and minimal positive or negative net cash flows from operations for the foreseeable future, with expenses fluctuating due to ongoing preclinical studies, clinical trials, product development, regulatory approvals, and intellectual property maintenance[210] Overview Provides an overview of KemPharm's focus on rare CNS diseases, product portfolio, arimoclomol acquisition, and pipeline development - KemPharm is a biotechnology company focused on the discovery, development, and commercialization of novel treatments for rare central nervous system (CNS) and neurodegenerative diseases, lysosomal storage disorders, and related treatment areas[196] - The company's pipeline includes arimoclomol (investigational for Niemann-Pick disease type C, NPC) and KP1077 (developing for idiopathic hypersomnia, IH, and narcolepsy). Approved products include AZSTARYS® (for ADHD) and APADAZ® (for pain)[196] - In May 2022, KemPharm acquired all assets and operations related to arimoclomol from Orphazyme for a cash payment of $12.8 million and assumed an estimated reserve liability of $5.2 million[198] - Arimoclomol is currently available to NPC patients in the United States through an early access program (EAP) with fifteen active treatment sites as of September 30, 2022. The company intends to resubmit the arimoclomol NDA to the FDA as early as Q3 2023[200][201] - KP1077, utilizing SDX (prodrug of d-MPH), was selected as the next clinical development candidate for IH and narcolepsy. Topline data from a Phase 1 clinical trial confirmed relative cardiovascular effects and pharmacokinetics of SDX compared to Ritalin, supporting planned Phase 2 trials as early as Q4 2022[204] - The company expects to continue incurring significant expenses and minimal positive or negative net cash flows from operations for the foreseeable future, with expenses fluctuating due to ongoing R&D, regulatory approvals, and intellectual property maintenance[210] Our Product Candidates and Approved Products Summarizes KemPharm's product portfolio, development status, and milestones for candidates and approved products - KemPharm employs its proprietary Ligand Activated Therapy (LAT) platform technology to discover and develop prodrugs aimed at improving attributes of approved drugs[207] Selected KemPharm Partnered and Other Development Assets: | Product Candidate / Product | Parent Drug (Effect Profile) (Indication) | Development Status | Next Milestone(s) | | :-------------------------- | :---------------------------------------- | :----------------- | :------------------------------------ | | Arimoclomol | Arimoclomol (ER) (NPC) | NDA Preparation | NDA Submission - as early as Q3 2023 | | KP1077* | Methylphenidate (ER) (IH) | Clinical - Phase 2 | Initiation of Pivotal Phase 2 Trial - as early as YE 2022 | | KP1077* | Methylphenidate (ER) (Narcolepsy Types I and II) | Clinical - Phase 2 | Initiation of Pivotal Phase 2 Trial - as early as YE 2022 | | KP879 | Methylphenidate (ER) (SUD) | Clinical - Phase 2 | External funding and collaborations | | AZSTARYS (Partnered) | Methylphenidate (ER) (ADHD) | FDA Approved | Tracking Payor Contracts and TRx's | | APADAZ (Partnered) | Hydrocodone/APAP (IR) (Pain) | FDA Approved | Tracking Payor Contracts and TRx's | - KP1077 is subject to a right of first negotiation in favor of Commave upon completion of a Phase 1 proof-of-concept study, but is not currently licensed to Commave[213] Third-Party Agreements Details key third-party agreements, including the AZSTARYS License Agreement with Commave and other consulting and termination agreements - Under the AZSTARYS License Agreement (September 2019, amended April 2021) with Commave, KemPharm granted an exclusive, worldwide license to develop, manufacture, and commercialize product candidates containing SDX and d-MPH, including AZSTARYS and KP484[215][216][218] - The agreement includes an upfront payment of $10.0 million, potential regulatory and sales milestone payments up to an aggregate of $590.0 million, and quarterly, tiered royalty payments ranging from high single digits to mid-twenties of Net Sales in the U.S. and low to mid-single digits outside the U.S[217][218] - Commave is responsible for and reimburses KemPharm for all development, commercialization, and regulatory expenses for the Licensed Product Candidates[220] - Under a March 2012 termination agreement with Aquestive Therapeutics, Aquestive has the right to receive 10% of any royalty or milestone payments related to AZSTARYS, KP484, KP879, or KP1077[223] - The Corium Consulting Agreement (July 2020) entitled KemPharm to receive up to $15.6 million for guiding product development and regulatory activities, including $2.0 million conditioned on FDA approval of ADLARITY (approved Q1 2022)[224] Results of Operations Net loss increased due to higher operating expenses and lower licensing revenue, partially offset by non-recurring 2021 items Net Loss Attributable to Common Stockholders (in thousands): | Period | 2022 | 2021 | Change | | :-------------------------- | :----- | :----- | :----- | | 3 Months Ended Sep 30 | $(6,616) | $(1,759) | $(4,857) | | 9 Months Ended Sep 30 | $(32,522) | $(60,194) | $27,672 | - The $27.7 million change in net loss for the nine months ended September 30, 2022, was primarily attributable to the non-recurrence of a $54.3 million deemed dividend and a $16.1 million loss on extinguishment of debt from 2021, partially offset by a $43.8 million change in (loss) income from operations[235] Revenue, Net (in thousands): | Period | 2022 | 2021 | Change | | :-------------------------- | :----- | :----- | :----- | | 3 Months Ended Sep 30 | $2,874 | $1,965 | $909 | | 9 Months Ended Sep 30 | $8,139 | $26,068 | $(17,929) | - The $17.9 million decrease in nine-month revenue was primarily due to a decrease in revenue from the AZSTARYS License Agreement and Corium Consulting Agreement, partially offset by an increase in revenue from the Arimoclomol EAP and other consulting arrangements[237] Operating Expenses (in thousands): | Expense Category | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Cost of revenue | $141 | $0 | $200 | $2,000 | | Research and development | $5,385 | $2,239 | $13,262 | $7,352 | | General and administrative | $3,974 | $1,948 | $10,266 | $6,145 | | Acquired in-process research and development | $— | $— | $17,663 | $— | - Acquired in-process research and development expense increased by $17.7 million for the nine months ended September 30, 2022, due to the Arimoclomol Purchase Agreement[241] Liquidity and Capital Resources Details $107.4 million in liquidity, historical funding, 2021 equity activities, share repurchases, debt repayment, and a new $20.0 million line of credit - As of September 30, 2022, the company had $107.4 million in cash, cash equivalents, and investments[243] - Sources of liquidity include revenues from the AZSTARYS License Agreement, reimbursement of third-party costs, consulting services, and product sales under the Arimoclomol EAP[244][247] - In January 2021, the company completed a Public Offering ($52.4 million gross proceeds) and a January 2021 Inducement Transaction ($44.0 million gross proceeds). In June 2021, a June 2021 Inducement Transaction generated $39.1 million gross proceeds[248][249][251] - A $50 million Share Repurchase Program was initiated in December 2021; $7.5 million has been used to repurchase 909,953 shares as of September 30, 2022[253] - All convertible notes and the Deerfield Facility Agreement were fully repaid and terminated in the first quarter of 2021[255][279] - A $20.0 million revolving Line of Credit was established in May 2022, with $12.8 million drawn to finance the Arimoclomol Purchase Agreement, secured by pledged certificates of deposit[280][281] Cash Flows Cash flows show $14.3 million used in operations, $36.7 million in investing, and $8.6 million provided by financing, a significant shift from 2021 Summary of Cash Flows (Nine Months Ended September 30, in thousands): | Activity | 2022 | 2021 | | :------------------------------------ | :--------- | :--------- | | Net cash (used in) provided by operating activities | $(14,255) | $11,287 | | Net cash used in investing activities | $(36,656) | $(85) | | Net cash provided by financing activities | $8,609 | $115,979 | | Net (decrease) increase in cash and cash equivalents | $(42,287) | $127,181 | - Net cash used in operating activities for the nine months ended September 30, 2022, was $14.3 million, consisting of a $32.5 million net loss and $3.9 million in working capital changes, partially offset by $22.2 million in non-cash adjustments (including $17.7 million for acquired in-process R&D)[284] - Net cash used in investing activities for the nine months ended September 30, 2022, was $36.7 million, primarily attributable to $14.1 million for net acquisition costs of the Arimoclomol Purchase Agreement and $23.8 million for purchases of investments[287] - Net cash provided by financing activities for the nine months ended September 30, 2022, was $8.6 million, primarily from $12.8 million in debt issuance (Line of Credit) and $1.3 million from insurance financing, offset by $4.7 million for share repurchases[289] - Net cash provided by financing activities for the nine months ended September 30, 2021, was $116.0 million, primarily from $49.3 million in Public Offering proceeds, $41.4 million from the January 2021 Inducement Transaction, and $36.8 million from the June 2021 Inducement Transaction[290] Future Funding Requirements Existing funds are projected to last into 2026, but future funding may be needed, subject to revenue and economic uncertainties - The company believes its existing cash, cash equivalents, and investments will be sufficient to fund operations into 2026, excluding projected revenue from royalties and sales milestones[292] - Potential near-term sources of additional funding include revenues generated under the AZSTARYS License Agreement or APADAZ License Agreement, consulting services revenue, and product sales under the Arimoclomol EAP[293][294] - The company cannot guarantee sufficient proceeds from these sources and may need to sell additional equity or convertible securities (potentially diluting stockholders), issue additional debt, or seek other third-party funding, including strategic transactions[293][296] - The COVID-19 pandemic, rising inflation, and interest rates introduce economic uncertainty that may reduce the company's ability to secure necessary debt or equity financing and impact its ability to achieve milestones[295] Critical Accounting Policies and Significant Judgments and Estimates Critical accounting policies remain unchanged, and financial statements rely on ongoing estimates and assumptions - The company's critical accounting policies have not materially changed from those described in Item 7 of its Annual Report on Form 10-K for the fiscal year ended December 31, 2021[298] - The preparation of financial statements requires management to make estimates and assumptions (e.g., revenue recognition, useful lives of assets, fair value of investments/derivatives, income taxes) that affect reported amounts, which are evaluated on an ongoing basis[297] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK This item is not applicable, requiring no material market risk disclosures for this interim report - This item is not applicable for the current reporting period, indicating no material quantitative and qualitative disclosures about market risk are required[299] ITEM 4. CONTROLS AND PROCEDURES Management concluded disclosure controls and procedures were effective, with no material changes in internal control over financial reporting - Management, with the participation of the chief executive officer and chief financial officer, evaluated the effectiveness of disclosure controls and procedures as of September 30, 2022, and concluded they were effective at the reasonable assurance level[301] - There was no change in internal control over financial reporting identified during the fiscal quarter ended September 30, 2022, that materially affected, or is reasonably likely to materially affect, internal control over financial reporting[302] PART II — OTHER INFORMATION Provides additional information not covered in the financial statements, including legal proceedings, risk factors, and equity security sales ITEM 1. LEGAL PROCEEDINGS The company is involved in routine legal proceedings, with no expected material adverse effect on operations or financial condition - The company is involved in routine legal proceedings, as well as demands, claims, and threatened litigation, which arise in the normal course of business[305] - Management believes there is no litigation pending that would reasonably be expected to, individually or in the aggregate, have a material adverse effect on the company's results of operations or financial condition[305] ITEM 1A. RISK FACTORS Refers to prior risk factors, adding new risks from acquisitions and global economic/political uncertainties - Readers should carefully consider all risk factors and uncertainties described in Part I, Item 1A. 'Risk Factors' of the Annual Report on Form 10-K for the fiscal year ended December 31, 2021[306] - New risks include those associated with acquisitions, such as problems integrating purchased operations or assets (e.g., Orphazyme), unanticipated costs, liabilities, and economic, political, legal, and regulatory challenges[307][308][309] - Global economic uncertainty and other global economic or political and regulatory developments (e.g., the conflict in Ukraine, the United Kingdom's exit from the EU) could have a material adverse effect on the company's business, cash flows, financial condition, and/or prospects[311][312][313][314] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS Reports no unregistered equity sales and updates on the share repurchase program, with $42.5 million remaining - There were no recent sales of unregistered securities[316] Issuer Purchases of Equity Securities (July 1, 2022, through September 30, 2022): | Period | Total Number of Shares Purchased | Average Price Paid per Share | Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs | | :------------------------------------ | :------------------------------- | :--------------------------- | :------------------------------------------------------------------------------------------------- | | July 1, 2022 through July 31, 2022 | — | $— | $42,500,000 | | August 1, 2022 through August 31, 2022 | — | $— | $42,500,000 | | September 1, 2022 through September 30, 2022 | — | $— | $42,500,000 | | Total | — | $— | $42,500,000 | - The Share Repurchase Program, initiated on December 20, 2021, allows for repurchases of up to $50 million of common stock through December 31, 2023[317] ITEM 3. DEFAULTS UPON SENIOR SECURITIES This item is not applicable, indicating no defaults upon senior securities - This item is not applicable for the current reporting period, indicating no defaults upon senior securities[318] ITEM 4. MINE SAFETY DISCLOSURES This item is not applicable, indicating no mine safety disclosures - This item is not applicable for the current reporting period, indicating no mine safety disclosures[319] ITEM 5. OTHER INFORMATION No other information is reported for this period - There is no other information to report for this period[320] ITEM 6. EXHIBITS Lists exhibits filed with the Form 10-Q, including organizational documents and certifications - Exhibits filed as part of this Form 10-Q include the Amended and Restated Certificate of Incorporation, Amended and Restated Bylaws, specimen stock certificate, certifications of Principal Executive and Financial Officers (31.1, 31.2, 32.1, 32.2), and Inline XBRL documents[322] SIGNATURES The report is signed by the President/CEO and CFO on November 9, 2022 - The report was signed on November 9, 2022, by Travis C. Mickle, Ph.D., President and Chief Executive Officer, and R. LaDuane Clifton, CPA, Chief Financial Officer, Secretary and Treasurer[325]