Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

Summary Of Responses As To WHY Kenpharm(KMPH) Has No Partners

|Includes: KemPharm (KMPH)


These are responses to an earlier article written by Spencer Osborne but which is now locked so no one without a subscription has access to them.

Basically I go through and discuss why KMPH drugs will be unsuccessful and, consequently, unattractive to partners.

I also address a few side issues such as the balance sheet and the CEO's wife working as VP, etc.

Apologies for being somewhat disorganized but I just copied and pasted some of my responses to Spencer Osborne's aricle:

It's now locked and the comments are available only to subscribers so I thought some may be curious as to my own opinion of KMPH.

(NYSE:A) Even though I stated that the financials were not the critical component of this conference call..."???

Well, I DO think certain ASPECTS of the financials are CRITICAL:

1) the DEBT load, for example:

"As of March 31, 2018, we had $96.3 million of convertible notes outstanding, consisting of a secured convertible note with Deerfield in the principal amount of $10.0 million, or the Deerfield Note, and $86.3 million of principal amount of 5.50% senior convertible notes due 2021, or the 2021 Notes."

96 million? Why, that's around 6.4 dollars per SHARE in DEBT, isn't it?

2) the fact that debt is SECURED, which, I'm presuming, means that if the company goes BELLY UP, then Deerfield will get all the assets and shareholders will be left with NOTHING.

3) the fact that it says:

"A significant portion of our outstanding warrants and convertible securities are entitled to certain anti-dilution protections which, if triggered, may cause substantial dilution to your investment....

...if we effect an "at the market offering"...the exercise price of the Deerfield Warrant and conversion price of the Deerfield Note will be adjusted  DOWNWARD pursuant to this anti-dilution adjustment only if such sales are made at a price less than $5.85 per share."

There seems to be a certain lack of CLARITY as to how MUCH of a "downward" adjustment this might be, but it sounds suspiciously like it has the POTENTIAL for a DEATH SPIRAL derivative.

4) The unrestricted cash and marketable securities were $28,199,000 at the end of June and the 2nd quarter burn was and the burn was 14 million. That burn is similar to 1st quarter so can presume it will continue.

Ergo, by the end of THIS quarter, they will be down to 14 million. For myself, when I see a biotech down to its last quarter of cash, that's basically FLAT BROKE.

5) There's ALSO the little matter of the ATM that they used the first quarter:

"...sold 446,111 shares of common stock under the ATM Agreement, resulting in gross proceeds of $2.9 million."

Now WHY would a company with over 38 million bucks in the bank feel compelled to use their ATM to raise cash at a measly stock price of $6.50 a share? Doesn't seem like the sort of thing that a company looking forward to a "bright" future would do now, does it?

Now, the OBVIOUS thing one might ASK oneself is who in their RIGHT mind want's to partner with a company NOSE DEEP in DEBT and losing money hand over fist, and evidently so DESPERATE as to utilize its ATM even though it had plenty of cash -- ESPECIALLY when, for all PRACTICAL purposes, Deerfield OWNS the company? I sure can't think of anyone!

If you really want to think in terms of "binary" events, better think about HOW MUCH the upcoming MASSIVE DILUTION will be! I bet it'll be REAL "binary"!

(NYSE:B) "This ADHD drug has very real potential to be a best-in-class solution with 30-minute onset of action, a 13-hour duration, and a very low abuse potential."???

Nooooooooooo...I don't think so.

First, note that KP415 will be a schedule 2 drugs and, as discussed earlier, will have a whole set of restrictions mandated by the DEA -- the most pertinent being that prescriptions for schedule II controlled substances cannot be refilled -- a new prescription must be issued. Such hassles increase the expenses associated with the drug.

Second, one should review this article to see just how MANY treatments -- aka competitors -- are currently available:

Obviously, a LOT of competition from some VERY BIG names. PLUS there are TWO fast/slow release formulations -- Concerta and Ritalin XR.  Hmmmmm...WHY only TWO if it's such a big deal?

Well, PERHAPS because of the results shown here:

"Once-a-Day Concerta Methylphenidate Versus Three-Times-Daily Methylphenidate inLaboratory and Natural Settings...

...This investigation clearly supports the efficacy of the Concerta long-acting formulation of MPH for parents who desire to have medication benefits for their child throughout the day and early evening. Effects of a single morning dose lasted throughout the school day and into the evening hours, and the effects on multiple measures, by multiple informants, and in multiple settings, were similar to those of a standard preparation of MPH given 3 times a day."

I chose this paper for several reasons:

1) Concerto is a combination fast/slow release form of ritalin similar to KP415

2) the paper shows that there really is no significant clinical difference between concerta and immediate release ritalin

3) the paper was written 17 years ago

Got that? SEVENTEEN YEARS AGO. Yet in SEVENTEEN YEARS the ONLY other fast/slow combo is ritalin XR. EVIDENTLY, there WASN'T a lot of MOTIVATION among pharmas to develop fast/slow combos, was there now?

Third, as far as "13 hour duration," Kempharm's OWN data showed that not only did concerta have a 14 hour duration but serum levels of ritalin were MUCH more stable:

Concerta rapidly goes to 8-10 and then stays there the entire 13 hours. KP415 SPIKES to 16 and then shows a parabolic decline to 4 at 13 hours. I don't believe you need a medical degree to recognize the stability of concerta concentration looks a LOT better and likely produces a better therapeutic effect over 12-14 hours with fewer adverse reactions.

If YOU were the doc, which do you think YOU would use?

I'll return tomorrow to discuss the claim of "low abuse potential."

(NYSE:C)Returning to KP415 to discusss claims of lower abuse potential, the first thing to note is that 415 is analagous to vyvanse in that its properties derive from ritalin being linked to serine while vyanse has lysine linked to dextroamphetamine.

In both cases, the molecules must be hydrolyzed to release the drug and that  occurs after absorption into the blood stream. Besides using ritalin, KP415 DIFFERS from vyvanse by having a "fast" component -- presumably plain ritalin -- plus the slow serine/ritalin.

Ritalin, in and of itself is less addictive than methampetamine. Ritalin acts purely as inhibitor of dopamine reuptake while amphetamine both stimulates dopamine release and acts as an inhibitor of reuptake. In terms of potency, it takes 10-20 times as much ritalin to achieve a high approaching methamphetamine.

Nevertheless, use of such large quantities does produce euphoric effects and, consequently, ritalin is a schedule 2 drug with all the prescribing woes I listed in some of the comments above.

Kempharm bases its claim of "very low abuse potential" to some extent on this graph where they said they used equimolar doses:

Well, that's fine, but in the REAL world wouldn't the abuser attempt HIGHER doses of KP415 to achieve their high? Would KP415 abuse potential remain the same at HIGHER doses?

Indeed, when you look at the insert for vyvanse, it says:

"In a human abuse liability study, when equivalent oral doses of 100 mg lisdexamfetamine dimesylate and 40 mg immediate-release d-amphetamine sulfate were administered to individuals with a history of drug abuse, lisdexamfetamine dimesylate 100 mg produced subjective responses on a scale of “Drug Liking Effects” (primary endpoint) that were significantly less than d-amphetamine immediate-release 40 mg.

HOWEVER, oral administration of 150 mg lisdexamfetamine dimesylate produced increases in positive subjective responses on this scale that were statistically INDISTINGUISHABLE from the positive subjective responses produced by 40 mg of oral immediate-release d-amphetamine and 200 mg of diethylpropion (C-IV)."

In OTHER words, in a similar fashion, maybe BOOSTING the dose of KP415 or ADDING another drug MIGHT INCREASE KP415's abuse potential.

Something that IS known to affect abuse potential is the rate at which the drug reaches the brain:

"The rate at which a psycho-active drug occupies, or binds to, the brain sites called receptors for that drug determines the intensity of its rewarding effects and its abuse liability...

...The faster a drug such as heroin or cocaine occupies enough brain receptors to produce a psychoactive effect, the greater the euphoria users experience, the more they "like" the drug, and the more liable they are to abuse it."

And for plain ritalin:

"Methylphenidate hydrochloride is rapidly and extensively absorbed from the tablets following oral administration"

And at least PART of KP415 is just plain ritalin.

In this regard, Kenpharm's own studies show that KP415 produces a very quick and very high ritalin spike followed by a parabolic decline:
NO doubt that SPIKE will contribute to rapid movement into the brain, so the OBVIOUS conclusion is that KP416 will be classified -- like ordinary ritalin -- under schedule 2 and Kempharm will NOT be able to claim that it has less abuse potential than any other ritalin.

Finally, I would note that KMPH made similar claims for apadaz and produced a whole series of publications in support:

"“Pharmacokinetics and Abuse Potential of Benzhydrocodone, a Novel Prodrug of Hydrocodone, After Intranasal Administration in Recreational Drug Users” [2016]

"“Pharmacokinetics and Abuse Potential of Benzhydrocodone, A Novel Prodrug of Hydrocodone, After Intranasal Administration in Recreational Drug Users”[2017]

Pharmacokinetics and Abuse Potential of Benzhydrocodone, a Novel Prodrug of Hydrocodone, After Intranasal Administration in Recreational Drug Users | Pain Medicine | Oxford Academic

"“Pharmacokinetics and Abuse Potential of Benzhydrocodone, a Novel Prodrug of Hydrocodone, After Intranasal Administration in Recreational Drug Users” [2017]

But guess WHAT! When it came time to present the results to the FDA, NONE of the differences proved to be STATISTICALLY SIGNIFICANT with the result being that Kemppharm now can't claim squat about the abuse potential of apadaz and ALL apadaz is NOW but just ANOTHER generic lortab!

(NYSE:D)"....the key here from an investment play is the conversion price of said debt."???

No, I think the "key" here is that the majority of the debt is collecting 5.5% interest which, from the 10-Q, amounts to $1,419,000 a quarter.

Tack that on to the 14,000,000 in R&D and G&A expenses and you get 15.4 million being burned every quarter -- or about 5 million a month.

As of TODAY the company must be down to 27.5 - 7.5 = 20 million. By the end of this quarter, down to 12.5. Barring any "deals," which we both know won't bring in any cash, there MUST be a MASSIVE SECONDARY or PIPE on the near horizon -- right?

ANOTHER question -- WHY does this company have THREE offices -- one each in:

1) 2500 Crosspark Rd, Coralville, IA 52241

2) 1180 Celebration Boulevard
Suite 103
Celebration, FL 34747

3) 2200 Kraft Drive
Suite 2425
Blacksburg, VA 24060

Given the company's size -- less than 35 per linkedin -- and that it manufactures nothing, sells nothing, and does only limited research, how do they justify 3 such disparate locations with no clear strategic value?

(NYSE:E) "Sorry, but the key is how to TRADE..."???

Hey, that's fine by me, but I'm the sort that likes to lift the hood and snoop around a bit! For example, I was looking at the VP of "Product Development and Operations," who just happens to be WIFE of the CEO:

Christal Mickle - VP Product Development and Operations - KemPharm, Inc. | LinkedIn


KemPharm, Inc. VP Product Development and Operations

Dates Employed Sep 2013 – Present Employment Duration 5 yrs

KemPharm, Inc VP of Corporate Affairs

Dates Employed 2008 – 2013 Employment Duration 5 yrs

Cofounder, VP and Group Leader

Dates Employed2006 – 2008 Employment Duration2 yrs

New River Pharmaceuticals Research Associate

Dates Employed 2002 – 2005 Employment Duration 3 yrs

Chateau Morrisette Winery and Restaurant Intern

Dates Employed 2001 – 2001 Employment Duration less than a year


University of Virginia

Degree Name Master's degree Field Of Study Chemistry
Dates attended or expected graduation 2004 – 2005

Virginia Tech

Degree NameB.A., B.S. Field Of StudyChemistry, Biochemistry
Dates attended or expected graduation 1997 – 2001"

So let me get this straight, this woman gets a MASTERS degree then goes to work as an INTERN in a restaurant before working as a "research associate" -- aka LAB TECHNICIAN -- at New River for 3 years, whereupon she marries Travis and moves to Iowa to start Kempharm? Is that about right?

Once THERE, she is "promoted" to "Cofounder, VP and Group Leader"?

THEN she is "promoted" to "VP of corporate affairs"?

And finally she is "promoted" to "VP Product Development and Operations."

Maybe it's just me, but Christal seemed to be just a bit shy of education and experience in the "executive" area to scale the old corporate "ladder" at the rate that she did.

I mean, you just HAVE to wonder at the extent to which potential partners might DIG into all these little DETAILS -- don't you?

(NYSE:F) No SINGLE matter may be of great importance, but, on the other hand, a PATTERN of "matters" MAY be important as it relates to shareholder equity and, consequently, understanding that pattern may at least help PRESERVE shareholder "value."

I used as ONE example the promotion of the CEO's wife from lab tech at New River to one VP position after another at Kempharm.

Granted, there's no way to tell precisely the extent to which her near total lack of training and experience for the positions she has occupied at Kempharm may have CONTRIBUTED to the BINARY EVENT of apadaz FAILING to get an abuse deterrent designation:

"Shares in KemPharm (Nasdaq: KMPH) more than halved in pre-market trading after a US Food and Drug Administration advisory panel did not back abuse deterrent labelling for its trial pain drug."

...or contributed to the NEXT "binary event" of a CLASS ACTION shareholder lawsuit:

"Unbeknownst to investors, the Registration Statement’s representations were materially untrue, inaccurate, misleading, and/or incomplete, because, upon information and belief, at the time of the Offering, the Company failed to disclose that the Company constructed a deficient study regarding Apadaz’s abuse-deterrent properties, and, as such, Apadaz would not be labeled as an “abuse-deterrent” product by the FDA.

When Apadaz failed to be labeled as an “abuse-deterrent,” Apadaz lost its competitive advantage, becoming just another painkiller on the market."

Nevertheless, SURELY you agree that "binary events" such as THOSE can  wreak HAVOC on the equity of those so unfortunate as to have bought KMPH -- right?

And you also HAVE to admit that word of "binary events" like THOSE getting around can inflict SERIOUS damage on the ability to attract investors and potential partners in the FUTURE -- don't you?

And while apadaz was going down the toilet, Ms. Mickle WAS "VP Product Development and Operations," so one MIGHT assume her LACK of training and experience MIGHT have played a role.

Yet the company apparently sees fit to use shareholder money to CONTINUE her salary, benefits, bonuses, and perks AND to lease an office in, of all places, "Celebration," Florida, so that she can have an easy commute from her home in Kissemme.

Altogether, a pattern may arise to suggest a certain disregard for shareholder interests. I'll return a little later and present an even MORE interesting contribution to the pattern.

(f) For future reference as to how the FDA handles the evaluation of "abuse

deterrent" requests, see:

It is lengthy and requires providing an email address to read the whole thing, but it very educational.

It was written AFTER the first rejection of apadaz by the FDA and explains in detail why apadaz failed. Just a basic outline:

1. "...KemPharm must prove to the FDA that Apadaz’s formulation does, in fact, deter its own abuse. If KemPharm succeeds in doing so, it can put abuse-deterrent language on its product label."

2. "Let’s start with category 1 labeling; that of abuse-deterring chemical and physical properties that minimize the risk of intravenous (IV) abuse....

Overall, KemPharm did quite a bit of due diligence in their testing and their results laid out a pretty solid case for category 1 labeling.

But some alternative testing by the FDA has actually shown that, given a not unreasonable amount of effort, enough hydrocodone could be extracted for IV  use.

Even safe, store-bought, supplements could potentially be used to this end (with currently unknown effects)."

3) "For category 2 and 3 label language, the premise boils down to the following in this case. KemPharm needs to prove, using studies with people, that it won’t be abused by the oral and/or intranasal (snorting) routes....

The FDA generally believes the oral route is the most significant (but not the only relevant) route of abuse for immediate release combination product opioids like Apadaz. There is no solid data to suggest otherwise and KemPharm failed to provide any significant data to the contrary....

Furthermore, the FDA believes that even if a drug deters intranasal abuse, it may not reduce overall abuse via other routes in any significant fashion.

And at least in the case of Apadaz, the intranasal and oral routes of abuse might actually be significantly intertwined"

4) "...they managed to show that Apadaz is better than Norco in minimizing some of the biochemical and physiological elements involved in drug abuse and addiction.

However, more important endpoints in these two studies showed that, by and large, Apadaz’s chemical make-up does not help deter its own abuse any better than Norco when taken orally (not unexpected) nor when taken nasally (bad news for KemPharm)."

5) "As for the third study, the “better” one in terms of favorable meaningful results for KemPharm, there was a problem. In its methodology, KemPharm failed to use at least two preferred (and important) FDA study design standards from the outset. So this study’s results are questionable, at best, although KemPharm tried to spin it otherwise."

[It was this particular study that was the basis for the class action lawsuit.]

6) "The good news is that Apadaz has a high chance of FDA approval solely based on its efficacy and safety. The bad news is that this alone gives it no competitive advantage over very well-established alternatives like Norco and Vicodin."

7) "So it boils down to this:

-- It’s likely the FDA will approve Apadaz in terms of efficacy/safety but this offers no long-term competitive advantage to KemPharm.

-- KemPharm’s best hopes appear to be winning category 1 language on its product label. Even here, we must hope they have better data to allay some of the many concerns raised by the FDA in terms of intravenous abuse potential.

-- Assuming FDA approval for efficacy/safety, it’s unlikely that category 2 and 3 abuse-deterrent language will be allowed.

#3 is important in a financial way."

Ultimately, apadaz received no credit for being any kind of abuse deterrent. That brings back around to what Kempharm is planning for KP415's FDA presentation.

We ALREADY know that KP415 includes a FAST componentand this inclusion will no doubt render KP415 ineligible for an abuse deterrent" label.

We ALSO know that there were PROBLEMS with the data as released -- something to the effect that data was not statistically significant for SKAMP improvement at 30 minutes and 13 hours.

From my perspective, that's meaningless. For me, the data presented did NOT demonstrate that KP415 was SUPERIOR to ANY other version of ritalin on the market.

ULTIMATELY, that boils down to KP415 coming out of the FDA meeting in essentially the same condition as adapaz -- nothing more a long acting ritalin generic.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.