- The stock of KemPharm has been on the move since the FDA approved Apadaz, an opioid painkiller for short-term acute pain management on February 23rd.
- This was a nice win for the company as its primary drug candidate continues to progress in development.
- So what is ahead for KemPharm? We try to answer that question in the paragraphs below.
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Today we take a look at Busted IPO KemPharm (KMPH), which has been on the move since the FDA approved its compound Apadaz, an opioid painkiller for short-term acute pain management, on February 23. What is ahead for this now Tier 3 concern? We take a more detailed look in the paragraphs below.
KemPharm is an Iowa-based biotech focused on the discovery and development of prodrugs which build on attributes of approved treatments. Improvements made include such areas how easily the drug is abused, safety profile and bioavailability. This is accomplished by attaching one or more molecules to the FDA-approved parent drug which when administered separate from the prodrug and release the the parent drug to exert its therapeutic effect. An advantage of this approach is that it has lower risk and a shorter time horizon than traditional drug development due to the active ingredient of each drug candidate possessing a known safety profile (further safety studies are typically not necessary). Large, established market opportunities in pain, attention deficit hyperactivity disorder and other central nervous system indications are being targeted. The company has just surpassed a $100 million market capitalization and trades just over $7.00 a share.
Source: Company Presentation
Several members of management hail from New River Pharmaceuticals (acquired by Shire for $2.6 billion), where they worked on Vyvanse. The treatment was a new type of amphetamine-based drug which could help control patient abuse and help replace revenue lost from Adderall XR after its patent expired.
The company´s LAT (Ligand Activated Therapy) platform technology has allowed them to create a varied pipeline with plenty of potential.
Source: Company Presentation
Their lead candidate is KP415, an extended-release prodrug of methylphenidate (MPH) for the treatment of ADHD. It has a faster onset with longer total duration, and positive pharmacokinetic data was reported in the second quarter. In 2016 the branded ADHD market was around $6.4 billion with over 95% of these products being extended-release. It is estimated that 60% of the time MPH is given as preferred first line of therapy for children under age 13.
Source: Company Presentation
Recently their pivotal efficacy study was initiated- the trial is a dose-optimized, double-blind, randomized, placebo-controlled, parallel efficacy laboratory classroom study enrolling children ages 6 to 12 years with diagnosis of ADHD. All 140 patients will likely finish the trial by the end of the second quarter (treatment duration of four weeks) with data potentially coming by the end of the year. If the drug candidate is approved and receives the label claim of early onset and extended treatment effect, it could have significant advantages over current methylphenidate treatments.
KP484 is their ADHD product candidate with super extended release properties. Early data is indicative of similar long-acting characteristics to Shire´s extended-release amphetamine-based product MYDAYIS. Launched in last August, MYDAYIS recently racked up 19,000 prescriptions and $10.2 million in revenue after just two months on the market. This year human abuse liability clinical data should read out and depending on how KP415 progresses this program stands to benefit as well.
Source: Company Presentation
If all goes well the corresponding New Drug Application could come as early as 2019. Readers should be aware that there are 10.5 million adults with ADHD who now comprise 53% of the prescription market. On the other hand, the last 7 new ADHD products launched were pediatric focused. Since 2009 Vyvanse has averaged 22% annual growth in the adult market, which bodes well for KP484 if it passes the goal line.
Apadaz, which was just approved, is an immediate-release opioid fixed-dose combination product consisting of benzhydrocodone HCI and APAP. The drug candidate incorporates their molecular-based abuse deterrent technology and testing has shown lower drug-liking scores and high tamper resistance.
A bet on the company is a bet on their LAT platform and it wouldn´t be surprising to see additional partnership agreements inked in the future. Many biotech and pharmaceutical companies are searching for ways to innovate on existing products or extend their intellectual property protection. The company has already entered into a pact with Genco Sciences to develop pro-drug based therapies for rare pediatric indications of Tourette´s syndrome with ADHD. Kempharm will be responsible for financing and product development, while Genco is eligible to receive milestone and royalty-based (or value share) payments. Management has stated that this pact could serve as a model for future licensing agreements.
Analyst Commentary and Balance Sheet:
The company has seen some positive analyst commentary since FDA approval. Last week, Oppenheimer ($13 price target), RBC Capital ($12 price target) and Canaccord Genuity ($11 price target, up from $7) all reiterated Buy or Outperform ratings on the stock. Oppenheimer's analyst has this to say about the approval of Apadaz and the company's prospects going forward:
We believe the approval of Apadaz (benzhydrocodone/APAP) for the short-term management of acute pain not only provides KMPH a pathway for value creation through partnering the asset but also validates its ligand activated therapy (LAT) pro- drug platform. At this point, we find it difficult to assign value to Apadaz (not in our model) since any value hinges on KMPH’s ability to secure a partner; however, it seems like this is a clear near-term priority for the company to monetize the asset. With that said, we believe the risk/reward at current levels remains attractive as we think shares should appreciate based on positive results from KP415’s pivotal study in ADHD and potential upside from an announced Apadaz partnership in the coming months. We reiterate our Outperform rating.
The company ended the third quarter with approximately $55 million on the balance sheet. Management has guided this provides an operational runway through the second quarter of 2019.
KemPharm remains an interesting concern. We initiated the name as a 'watch item' name and recommended a small purchase within our exclusive 'deep dive' on the company to Busted IPO Forum members on January 16th. KemPharm had several favorable traits including multiple 'shots on goal', some insider buying, a cash runway and solid analyst support. While FDA approval definitely improves the company's risk profile, I continue to prefer Neos Therapeutics (NEOS) in the ADHD space. Therefore, KemPharm will remain a small position within my own portfolio while awaiting further developments.
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This article was written by
The Busted IPO Forum founded by Bret Jensen, focuses on stocks that have been public for 18 months to six years that are significantly under their offering price, AKA Busted IPOs. Many times, after the initial analyst hyperbole has died and insider stock lockups have expired, these same companies can be had for .30 to .50 cents on the dollar from when the shares went public.
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Specializing in profiling high beta sectors, Bret Jensen founded and also manages The Biotech Forum, The Insiders Forum, and the Busted IPO Forum model portfolios. Finding “gems” in the biotech and small-cap stock sectors, these highly volatile spaces proven hugely successful have empowered Bret Jensen's own investing portfolio.
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Analyst’s Disclosure: I am/we are long KMPH, NEOS. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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