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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 


 

FORM 10-Q

 


 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2021

 

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Transition Period From                        to

 

Commission File No. 001-36913

 


 

KemPharm, Inc.

(Exact Name of Registrant as Specified in Its Charter)

 


 

Delaware

 

20-5894398

(State or Other Jurisdiction of Incorporation or Organization)

 

(I.R.S. Employer Identification No.)

 

 

 

1180 Celebration Boulevard, Suite 103, Celebration, FL

 

34747

(Address of Principal Executive Offices)

 

(Zip Code)

 

(321) 939-3416

(Registrant’s Telephone Number, Including Area Code)
 
 
(Former Name, Former Address, and Former Fiscal Year if Changed Since Last Report)
 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each classTrading SymbolName of each exchange on which registered
CommonKMPH

The Nasdaq Stock Market LLC

(Nasdaq Global Select Market)

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes       No  

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes       No  

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.:

 

Large accelerated filer

Accelerated filer     

Non-accelerated filer

Smaller reporting company

 

 

Emerging growth company

      

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.     ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes       No  

 

Total shares of common stock outstanding as of November 9, 2021: 35,319,426

 



 

 

 

 

INDEX

 

KEMPHARM, INC.

FORM 10-Q

 

    Page
     

 

PART I — FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements

 

 

Condensed Balance Sheets as of SEPTEMBER 30, 2021 (UNAUDITED) and December 31, 2020

3

 

UNAUDITED Condensed Statements of Operations for the three AND NINE months ended SEPTEMBER 30, 2021 and 2020

4

  UNAUDITED CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) FOR THE Three AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020 5

 

Unaudited condensed Statements of Cash Flows for the NINE months ended SEPTEMBER 30, 2021 and 2020

7

 

Notes to unaudited Condensed Financial Statements

8

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

36

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

52

Item 4.

Controls and Procedures

52

 

 

 

 

PART II — OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

53

Item 1A.

Risk Factors

53

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

104

Item 3.

Defaults Upon Senior Securities

104

Item 4.

Mine Safety Disclosures

104

Item 5.

Other Information

104

Item 6.

Exhibits

105

 

 

 

 

Signatures

106

 

 

PART I — FINANCIAL INFORMATION

 

Item 1.

Financial Statements

 

KEMPHARM, INC.

CONDENSED BALANCE SHEETS

(in thousands, except share and par value amounts)

 

  

September 30,

  

December 31,

 
  

2021

  

2020

 
  

(unaudited)

     

Assets

        

Current assets:

        

Cash and cash equivalents

 $131,503  $4,213 

Accounts and other receivables

  1,619   2,579 

Prepaid expenses and other current assets

  1,508   1,481 

Restricted cash

     109 

Total current assets

  134,630   8,382 

Property and equipment, net

  931   1,039 

Operating lease right-of-use assets

  1,186   1,350 

Other long-term assets

  439   438 

Total assets

 $137,186  $11,209 
         

Liabilities and stockholders' equity (deficit)

        

Current liabilities:

        

Accounts payable and accrued expenses

 $2,085  $6,647 

Current portion of operating lease liabilities

  349   327 

Current portion of loans payable

     390 

Other current liabilities

  1,264   172 

Total current liabilities

  3,698   7,536 

Convertible notes, less current portion, net

     67,658 

Derivative and warrant liability

  396   304 

Operating lease liabilities, less current portion

  1,324   1,587 

Loans payable

     391 

Other long-term liabilities

  31   145 

Total liabilities

  5,449   77,621 
         

Commitments and contingencies (Note D)

          
         

Stockholders’ equity (deficit):

        

Preferred stock:

        

Undesignated preferred stock, $0.0001 par value, 10,000,000 shares authorized, no shares issued or outstanding as of September 30, 2021; 9,961,846 shares authorized, no shares issued or outstanding as of December 31, 2020

      

Common stock, $0.0001 par value, 250,000,000 shares authorized, 35,317,313 shares issued and outstanding as of September 30, 2021; 4,537,321 shares issued and outstanding as of December 31, 2020

  4   0 

Additional paid-in capital

  396,059   192,062 

Accumulated deficit

  (264,326)  (258,474)

Total stockholders' equity (deficit)

  131,737   (66,412)

Total liabilities and stockholders' equity (deficit)

 $137,186  $11,209 

 

 

See accompanying notes to unaudited condensed financial statements

 

 

 

 

KEMPHARM, INC.

UNAUDITED CONDENSED STATEMENTS OF OPERATIONS

(in thousands, except share and per share amounts)

 

   

Three months ended September 30,

   

Nine months ended September 30,

 
   

2021

   

2020

   

2021

   

2020

 

Revenue

  $ 1,965     $ 1,925     $ 26,068     $ 10,922  

Operating expenses:

                               

Royalty and direct contract acquisition costs

    0             2,000       1,305  

Research and development

    2,239       1,709       7,352       5,789  

General and administrative

    1,948       1,429       6,145       5,393  

Severance expense

                      830  

Total operating expenses

    4,187       3,138       15,497       13,317  

(Loss) income from operations

    (2,222 )     (1,213 )     10,571       (2,395 )

Other income (expense):

                               

Loss on extinguishment of debt

                (16,096 )      

Interest expense related to amortization of debt issuance costs and discount

          (578 )     (150 )     (1,723 )

Interest expense on principal

    (6 )     (1,163 )     (221 )     (3,620 )

Fair value adjustment related to derivative and warrant liability

    332       (137 )     (92 )     (65 )

Interest and other income (expense), net

    137       48       136       (135 )

Total other income (expense)

    463       (1,830 )     (16,423 )     (5,543 )

Loss before income taxes

    (1,759 )     (3,043 )     (5,852 )     (7,938 )

Income tax benefit

          34             34  

Net loss

    (1,759 )     (3,009 )     (5,852 )     (7,904 )

Deemed dividend

                (54,342 )      

Net loss attributable to common stockholders

  $ (1,759 )   $ (3,009 )   $ (60,194 )   $ (7,904 )
                                 

Basic net loss per share of common stock:

                               

Net loss

  $ (0.05 )   $ (0.68 )   $ (0.21 )   $ (2.08 )

Net loss attributable to common stockholders

  $ (0.05 )   $ (0.68 )   $ (2.16 )   $ (2.08 )
                                 

Diluted net loss per share of common stock:

                               

Net loss attributable to common stockholders

  $ (0.06 )   $ (0.68 )   $ (2.16 )   $ (2.08 )
                                 

Weighted average number of shares of common stock outstanding:

                               

Basic

    35,217,953       4,425,474       27,904,711       3,794,840  

Diluted

    35,217,953       4,425,474       27,904,711       3,794,840  

 

See accompanying notes to unaudited condensed financial statements

 

 

 

 

KEMPHARM, INC.

UNAUDITED CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

(in thousands)

 

   

Preferred Stock

                                 
   

Series A

   

Series B-1

   

Series B-2

                                   

Total

 
   

Convertible

   

Convertible

   

Convertible

   

Undesignated

           

Additional

           

Stockholders'

 
   

Preferred

   

Preferred

   

Preferred

   

Preferred

   

Common

   

Paid-in

   

Accumulated

   

Equity

 
   

Stock

   

Stock

   

Stock

   

Stock

   

Stock

   

Capital

   

Deficit

   

(Deficit)

 

Balance as of January 1, 2021

  $     $     $     $     $     $ 192,062     $ (258,474 )   $ (66,412 )

Net loss

                                        (10,296 )     (10,296 )

Stock-based compensation expense

                                  675             675  

Issuance of common stock in connection with Public Offering, net of discounts and commissions

                            1       49,284             49,285  

Issuance of common stock in connection with the exercise of warrants in the January 2021 Inducement Transaction, net of discounts and commissions

                            1       40,390             40,391  

Issuance of common stock in connection with the exercise of common stock warrants

                                  25,593             25,593  

Fair value of warrants issued in connection with the Exchange Agreement

                                  15,990             15,990  

Fair value of Series B-2 Preferred Stock issued in accordance with the Exchange Agreement

                29,056                               29,056  

Issuance of common stock as a result of Series B-2 Preferred Stock conversion

                (29,056 )           1       29,055              

Fair value of warrants issued in connection with the January 2021 Inducement Transaction

                                  38,437             38,437  

Deemed dividend related the January 2021 Inducement Transaction

                                  (37,444 )           (37,444 )

Offering expenses charged to equity

                                  (1,106 )           (1,106 )

Issuance of common stock in exchange for consulting services

                                  82             82  

Balance as of March 31, 2021

                            3       353,018       (268,770 )     84,251  

Net income

                                        6,203       6,203  

Stock-based compensation expense

                                  318             318  

Issuance of common stock in connection with the exercise of warrants in the June 2021 Inducement Transaction, net of discounts and commissions

                                  35,455             35,455  

Issuance of common stock in connection with the exercise of common stock warrants

                                  4,191             4,191  

Fair value of warrants issued in connection with the June 2021 Inducement Transaction

                                  17,089             17,089  

Deemed dividend related the June 2021 Inducement Transaction

                                  (16,898 )           (16,898 )

Offering expenses charged to equity

                                  (18 )           (18 )

Issuance of common stock in exchange for consulting services

                                  72             72  

Balance as of June 30, 2021

                            3       393,227       (262,567 )     130,663  

Net loss

                                        (1,759 )     (1,759 )

Stock-based compensation expense

                                  620             620  

Issuance of common stock in connection with the exercise of warrants in the June 2021 Inducement Transaction, net of discounts and commissions

                            1       1,104             1,105  

Issuance of common stock in connection with the exercise of common stock warrants

                                  1,035             1,035  

Issuance of common stock in exchange for consulting services

                                  73             73  

Balance as of September 30, 2021

  $     $     $     $     $ 4     $ 396,059     $ (264,326 )   $ 131,737  

 

See accompanying notes to unaudited condensed financial statements

 

 

KEMPHARM, INC.

UNAUDITED CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT, CONTINUED

(in thousands)

 

   

Preferred Stock

                                 
   

Series A

   

Series B-1

   

Series B-2

                                         
   

Convertible

   

Convertible

   

Convertible

   

Undesignated

           

Additional

           

Total

 
   

Preferred

   

Preferred

   

Preferred

   

Preferred

   

Common

   

Paid-in

   

Accumulated

   

Stockholders'

 
   

Stock

   

Stock

   

Stock

   

Stock

   

Stock

   

Capital

   

Deficit

   

Deficit

 

Balance as of January 1, 2020

  $     $     $     $     $     $ 171,258     $ (245,714 )   $ (74,456 )

Net loss

                                        (5,754 )     (5,754 )

Stock-based compensation expense

                                  1,029             1,029  

Issuance of common stock in connection with equity line of credit

                                  1,112             1,112  

Issuance of common stock in connection with Deerfield Optional Conversion Feature

                                  9,600             9,600  

Recognition of deferred offering costs in connection with equity line of credit

                                  121             121  

Offering expenses charged to equity

                                  (327 )           (327 )

Balance as of March 31, 2020

                                  182,793       (251,468 )     (68,675 )

Net income

                                        859       859  

Stock-based compensation expense

                                  620             620  

Issuance of common stock in connection with equity line of credit

                                  1,191             1,191  

Issuance of common stock in connection with Deerfield Optional Conversion Feature

                                  3,150             3,150  

Offering expenses charged to equity

                                  (92 )           (92 )

Issuance of common stock in exchange for consulting services

                                  84             84  

Balance as of June 30, 2020

  $     $     $     $     $     $ 187,746     $ (250,609 )   $ (62,863 )

Net loss

                                        (3,009 )     (3,009 )

Stock-based compensation expense

                                  385             385  

Issuance of common stock in connection with Deerfield Optional Conversion Feature

                                  3,113             3,113  

Issuance of common stock in exchange for consulting services

                                  47             47  

Balance as of September 30, 2020

  $     $     $     $     $     $ 191,291     $ (253,618 )   $ (62,327 )

 

See accompanying notes to unaudited condensed financial statements

 

 

 

 

KEMPHARM, INC.

UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS

(in thousands)

 

   

Nine months ended September 30,

 
   

2021

   

2020

 

Cash flows from operating activities:

               

Net loss

  $ (5,852 )   $ (7,904 )

Adjustments to reconcile net loss to net cash used in operating activities:

               

Loss on extinguishment of debt

    16,096        

Stock-based compensation expense

    1,613       2,034  

Non-cash interest expense

    8       3,583  

Amortization of debt issuance costs and debt discount

    150       1,723  

Depreciation and amortization expense

    193       207  

Fair value adjustment related to derivative and warrant liability

    92       65  

Change in estimated deferred offering costs

          130  

Loss on sublease and disposal of property and equipment

    76       251  

Consulting fees paid in common stock

    227       131  

Change in assets and liabilities:

               

Accounts and other receivables

    960       (337 )

Prepaid expenses and other assets

    (1,366 )     537  

Operating lease right-of-use assets

    88       121  

Accounts payable and accrued expenses

    (1,891 )     (1,299 )

Operating lease liabilities

    (241 )     (194 )

Other liabilities

    1,134       72  

Net cash provided by (used in) operating activities

    11,287       (880 )
                 

Cash flows from investing activities:

               

Purchases of property and equipment

    (85 )     (7 )

Net cash used in investing activities

    (85 )     (7 )
                 

Cash flows from financing activities:

               

Proceeds from Public Offering, net of discounts and commissions

    49,285        

Proceeds from January 2021 Inducement Transaction, net of discounts and commissions

    41,384        

Proceeds from June 2021 Inducement Transaction, net of discounts and commissions

    36,751        

Proceeds from equity line of credit

          2,303  

Proceeds from Payment Protection Program loan

          781  

Payment of offering costs

    (1,299 )     (97 )

Repayment of principal on finance lease liabilities

    (156 )     (168 )

Payment of debt issuance costs

    (2,881 )     (34 )

Repayment of principal on convertible notes

    (37,924 )      

Net proceeds from exercise of common stock warrants

    30,819        

Net cash provided by financing activities

    115,979       2,785  

Net increase in cash, cash equivalents and restricted cash

    127,181       1,898  

Cash, cash equivalents and restricted cash, beginning of period

    4,322       3,555  

Cash, cash equivalents and restricted cash (2020), end of period

  $ 131,503     $ 5,453  
                 

Supplemental cash flow information:

               

Cash paid for interest

  $ 213     $ 71  

Facility Notes principal converted to Series B-2 Preferred Stock

    31,477        

2019 Notes principal converted to common stock

          15,863  

Commitment shares issued in connection with equity line of credit included in deferred offering costs

          121  

Amounts due for property and equipment included in accounts payable and accrued expenses

          4  

Amounts due for deferred offering costs included in accounts payable and accrued expenses

    70        

Fair value of warrants issued to underwriters in connection with Public Offering

    3,485        

 

See accompanying notes to unaudited condensed financial statements.

 

 

KEMPHARM, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

 

 
A.Description of Business and Basis of Presentation

 

Organization

 

KemPharm, Inc. (the “Company”) is a specialty pharmaceutical company focused on the discovery and development of proprietary prodrugs to treat serious medical conditions through its proprietary Ligand Activated Therapy ("LAT") technology. The Company utilizes its proprietary LAT technology to generate improved prodrug versions of U.S. Food and Drug Administration (the "FDA") approved drugs as well as to generate prodrug versions of existing compounds that may have applications for new disease indications. The Company's prodrug product candidate pipeline is focused on the high need areas of attention deficit hyperactivity disorder ("ADHD"), stimulant use disorder ("SUD") and central nervous system ("CNS") rare diseases, including idiopathic hypersomnia ("IH"). In addition, the Company has received FDA approval for AZSTARYS (formerly referred to as KP415), a new once-daily treatment for ADHD in patients age six years and older, and for APADAZ, an immediate-release combination product containing benzhydrocodone, a prodrug of hydrocodone, and acetaminophen. 

 

The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") for interim financial information and with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, they do not include all of the information and related notes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included in the accompanying financial statements. Operating results for the three and nine months ended September 30, 2021 are not necessarily indicative of the results that  may be expected for the full year ending  December 31, 2021.

 

This interim information should be read in conjunction with the audited financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended  December 31, 2020, filed with the Securities and Exchange Commission (“SEC”) on  March 12, 2021.

 

Reverse Stock Split

 

On December 23, 2020, the Company completed a one-for-sixteen reverse stock split (the “Reverse Stock Split”), which reduced the number of shares of the Company’s common stock that were issued and outstanding immediately prior to the effectiveness of the Reverse Stock Split. The number of shares of the Company’s authorized common stock was not affected by the Reverse Stock Split and the par value of the Company’s common stock remained unchanged at $0.0001 per share. No fractional shares were issued in connection with the Reverse Stock Split. Stockholders who otherwise held fractional shares of the Company’s common stock as a result of the Reverse Stock Split received a cash payment in lieu of such fractional shares. Except where disclosed, all amounts related to number of shares and per share amounts have been retroactively restated in these unaudited condensed financial statements to reflect this Reverse Stock Split.

 

Entry into 2020 ELOC Agreement

 

In February 2020, the Company entered into a purchase agreement for an equity line of credit (the “2020 ELOC Agreement”) with Lincoln Park Capital, LLC ("Lincoln Park") which provides that, upon the terms and subject to the conditions and limitations set forth therein, the Company may sell to Lincoln Park up to $4.0 million of shares of common stock from time to time over the 12-month term of the 2020 ELOC Agreement, and upon execution of the 2020 ELOC Agreement the Company issued an additional 19,289 shares of common stock to Lincoln Park as commitment shares in accordance with the closing conditions within the 2020 ELOC Agreement. Concurrently with entering into the 2020 ELOC Agreement, the Company also entered into a registration rights agreement with Lincoln Park (the “2020 ELOC Registration Rights Agreement”) pursuant to which the Company agreed to register the sale of the shares of common stock that have been and may be issued to Lincoln Park under the 2020 ELOC Agreement pursuant to the Company’s existing shelf registration statement on Form S-3 or a new registration statement. In May 2020, the Company reached the maximum allowable shares to be issued under the registration statement of 579,260 shares (inclusive of the 19,289 commitment shares) as defined in Section 2(f)(i) of the 2020 ELOC Agreement and therefore cannot issue additional shares under the 2020 ELOC Agreement. Through May 2020, the Company sold 559,971 shares of common stock to Lincoln Park (exclusive of the 19,289 commitment shares) under the 2020 ELOC Agreement for gross proceeds of approximately $2.3 million.

 

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Underwriting Agreement

 

On January 8, 2021, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with Roth Capital Partners, LLC (the “Underwriter” or "Roth"), to issue and sell 6,765,463 shares of common stock of the Company, pre-funded warrants to purchase 926,844 shares of common stock and warrants to purchase 7,692,307 shares of common stock at an exercise price per share of $6.50 in an underwritten public offering (the “Public Offering”) pursuant to a Registration Statement on Form S-1 (File No. 333-250945) and a related prospectus, in each case filed with the Securities and Exchange Commission (the “SEC”). The offering price to the public was $6.50 per share of common stock and accompanying warrant, representing a public offering price of $6.4999 per share of common stock and $0.0001 per related warrant. In addition, the Company granted the Underwriter an option to purchase, for a period of 45 days, up to an additional 1,153,846 shares of the Company’s common stock and/or warrants to purchase up to an additional 1,153,846 shares of the Company’s common stock.

 

On January 8, 2021, the Underwriter exercised its over-allotment option, in part, for warrants to purchase 754,035 shares of the Company’s common stock. Further on February 1, 2021, the Underwriter again exercised its over-allotment option to purchase 374,035 shares of common stock.

 

On January 12, 2021, the Company closed the Public Offering. The aggregate gross proceeds to the Company from the Public Offering, including over-allotment, totaled approximately $52.4 million, before deducting underwriting discounts and commissions and offering expenses payable by the Company.

 

Listing on the Nasdaq Capital Market

 

On January 7, 2021, the Company’s common stock was approved for listing on The Nasdaq Capital Market. The Company’s common stock began trading on The Nasdaq Capital Market on January 8, 2021 under the ticker symbol “KMPH”.

 

Entry into 2021 ATM Agreement

 

On July 2, 2021, the Company entered into an equity distribution agreement (the "2021 ATM Agreement") with JMP Securities LLC ("JMP") and RBC Capital Markets, LLC ("RBCCM") under which the Company may offer and sell, from time to time at its sole discretion, shares of its common stock having an aggregate offering price of up to $75.0 million through JMP and RBCCM as its sales agents. The issuance and sale, if any, of common stock by the Company under the 2021 ATM Agreement will be made pursuant to a registration statement on Form S-3. JMP and RBCCM may sell the common stock by any method permitted by law deemed to be an “at the market offering” as defined in Rule 415 of the Securities Act of 1933, as amended. JMP and RBCCM will use commercially reasonable efforts to sell the common stock from time to time, based upon instructions from the Company (including any price, time or size limits or other customary parameters or conditions the Company may impose). The Company will pay JMP and RBCCM a commission equal to 3.0% in the aggregate of the gross sales proceeds of any common stock sold through JMP and RBCCM under the 2021 ATM Agreement. The Company filed a registration statement on Form S-3 covering the sale of the shares of its common stock up to $350.0 million, $75.0 million of which was allocated to the sales of the shares of common stock issuable under the 2021 ATM Agreement, which was declared effective on July 12, 2021. As of September 30, 2021, no shares have been issued or sold under the 2021 ATM Agreement.

 

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B.Summary of Significant Accounting Policies

 

Use of Estimates

 

The preparation of unaudited condensed financial statements in conformity with U.S. GAAP requires the Company to make estimates and assumptions that affect the amounts reported in the unaudited condensed financial statements and accompanying notes. Actual results could differ from those estimates.