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kmph20210930_10q.htm

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

☐	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 class

Trading Symbol

Name of each exchange on which registered

Common

KMPH

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

Table of Contents

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

Table of Contents

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

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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

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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

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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

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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.

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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.