KemPharm Rebounding On Insider Buy And KOL Report

Summary

• KemPharm saw the filing for a 304,000 share purchase on August 1st.
• RBC hosted Key Opinion Leader Conference discussing KemPharm.
• Stock up as high as $5.85 on August 1st after hours trading.

KemPharm (KMPH) has seen a positive week develop and has recovered some lost ground after market confusion surrounding its Phase 3 read-out on ADHD drug candidate KP415. Early in the week, RBC hosted a Key Opinion Leader conference call in which KP415 was discussed. The call featured RBC analyst Randall Stanicky and Dr. Thomas Laughren, Director, Regulatory Affairs, MGH CTNI at Mass General Hospital. Dr. Laughren once served as Division Director for the Division of Psychiatry Products, Center for Drug Evaluation and Research at FDA and consults to KemPharm.

The RBC call centered around KemPharm's KP415 phase 3 clinical trial results, some of the market confusion surrounding those results, and offered clarity on prospects for approval and obtaining the desired label. More specifically, Dr. Laughren addressed what data the FDA typically considers and pointed out that drug candidates that meet their primary endpoints in a phase 3 clinical trial usually see FDA approval. It is also the opinion of Dr. Laughren that the FDA will fully consider the presentation of ad hoc data that the company seeks to include in its application. This data offers a strong argument for a 30-minute onset of KP415 as well as a 13-hour duration. These attributes would set KP415 above current treatments in both onset of action as well as duration. A good safety profile, along with these attributes could set the stage for a handsome partnership on this drug.

KemPharm stock sold off on the release of the data because of an anomaly within the data that has subsequently been explained by the company as well as a Key Opinion Leader in the area of ADHD treatment. RBC's Randall did not adjust his price target at this stage but did send out a report that laid out what should be considered a bullish stance on the prospects of FDA approval and a label that the company seeks.

In an instance of fortuitous timing, an SEC filing for an insider buy on KemPharm stock hit the SEC web page On August 1st. Delaware Street Capital Master Fund added 304,283 shares to its holdings and now is in possession of 2,095,914 shares which represents a stake of over 10% of the company. With just 15 million shares outstanding, a buy like this allows some big players to move the stock price fairly quickly.

It has been widely thought that KemPharm was going to do a capital raise on a spike with the phase 3 data readout on KP415. The data anomaly threw a wrench in the works of that concept, but that may not be the end of a capital raise narrative. With the sudden reversal on the stock price, the recent shorting activity will likely need to pause and consider the reality that odds for FDA approval are very high. If another big player or two seek to take a position in this stock, they can still get in at a discount from the stock price prior to the sell-off, whilst also assisting to drive the stock price north. The beauty of this for retail investors is that you possess the same opportunity, albeit at a much smaller scale.

It is my opinion that KemPharm will be negotiating for a partner in the very near term, while at the same time trying to entice some big players to take a stake in the company. Raising some additional capital, even if dilutive, would give KemPharm more leverage in any negotiation. In my opinion, the biggest possible leverage will come with competing bids for rights to the drug. KemPharm might even be able to package its adult ADHD drug candidate KP484 (a sister drug to KP415) into a deal as well. That type of move could foist some of the clinical trial costs onto the new partner, thus preserving cash for continued operations, continued R&D, as well as driving other pipeline candidates.

With an August 1st after hours spike from $4.40 to as high as $5.85, it is clear that some players may want in on this company before any deal is announced. While there is no timeline on a deal to be announced, it is my belief that we could see this happen by October, setting the stage for a Q1 FDA filing for approval.

While there is never anything certain in the stock market, my beliefs are as follows:

• We have seen the bottom with strong support now being set at about $4.00
• KP415 will get the desired 30-minute onset and 13-hour duration on the label
• KP415 will get a partner as soon as the end of October with the leverage being that if KemPharm files for approval, the price tag will only go up
• KP484 could be a wild card in any negotiations
• There is a soft ceiling at $5.85 tied to warrants in possession of Deerfield
• After $5.85, the stock has a free runway all the way to $17 per share where some convertibles are priced

In my opinion, this company could see a stock price work toward double digits in the next three months and could see the mid teens or more on a partnership deal. The company has ample opportunity to sell the KP415 story in the coming weeks and will make every effort to do so. That process will start with the company's participation in the Canaccord Genuity Growth Conference in Boston on August 8th and 9th and its quarterly call on August 9th. Investors should watch the volume closely and should be ready for impressive moves in the stock as active traders jockey for position. If the shorting action on confusion was able to take this equity down below $4.00 per share, the forthcoming clarity should allow a full recovery and more. Stay Tuned!

Editor's Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.

Analyst’s Disclosure: I am/we are long KMPH. 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.