Here’s What Happened With KemPharm Inc (NASDAQ:KMPH)

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On May 5, 2016, an advisory panel met to review Apadaz – the abuse deterrent opioid candidate developed by KemPharm Inc (NASDAQ:KMPH) and currently under FDA consideration. The panel reported the results of its review, and the subsequent vote, after market close on Thursday. Pre market on Friday, KemPharm is down more than 42%, and looks set to close out the week at almost half down no its pre-review capitalization. The penal voted in favor of the drug in question’s approval, so what happened? Further what should we expect going forward? Here’s what you need to know.

First, a look at the drug itself. We discussed the science behind the drug in detail in our Weekly Biotech Review, so we’ll just stick with a brief primer here to avoid repetition. Those looking for a little more information can head over to the Weekly Review by clicking here. So, to summarize, the drug is an opioid, oral administration candidate, with a target indication of pain management. It’s kicker, and its advantage over the currently available pain drugs, is that it is designed to not activate until it reached the gastrointestinal tract, meaning it is abuse deterrent. Opioid abuse is a massive problem in the US, and the market is desperate for a drug that physicians can prescribe without abuse related concerns. Its potential, therefore is very large. It’s this abuse deterrent feature that is the source of the selloff, and we’ll look at this shortly.

Before that, however, let’s look at the panels overarching recommendation. The review panel voted 16 to 4 in favor of approval of Apadaz, in its target indication – acute pain that requires an opioid. In other words, as an opioid pain management treatment, the panel believes it works, and that the FDA should approve it as such. There are a host of established opioid treatments already on the market, however, many of which either have a big pharma supported marketing effort or are available generically at very low cost. KemPharm, therefore, was relying heavily on its ability to differentiate its candidate from these already available options – a differentiation rooted in abuse deterrence. Unfortunately for the company, it doesn’t look like it’s going to be able to do this. The panel voted 18 to 2 in against the labelling of Apadaz as an abuse deterrent opioid. To again reiterate in simpler terms – the drug works to alleviate pain, but isn’t abuse deterrent, and should only therefore be approved as a peer-alternative to the currently available opioids.

This is a big problem for KemPharm. The company spent $14 million last year, and $12 million the year before on research and development (read: money spent carrying Apadaz through the late stage development process), and this doesn’t include its standard administrative costs. Total net loss for 2015 came in at $55 million. Investors had hoped this number would be eclipsed by 2017 revenues on the back of a decent level of penetration in the abuse deterrent opioid market. Instead, it now looks as though KemPharm has lost close to $100 million over the last three to four years while it developed a drug it can only use to target a generic, or otherwise totally saturated, market.

This is why the company is down, and why further gains are likely before the week draws to a close.

Going forward, is there any reprieve? Well, of course, the FDA doesn’t have to go with the panel’s recommendations. This leaves a small window of opportunity for both an approval and an abuse deterrent labeling. For the aggressive risk taker, KemPharm might look attractive right now, based on this small window of opportunity. In all likelihood, however, the agency will follow its panel and reject the label, while approving the drug. It looks like we’ve got another situation in which an approval isn’t necessarily a positive thing for a developing company.

Further, this has wider implications for the KemPharm going forward. The company’s ligand technology, i.e. the element of its operations that differentiate its drugs as abuse deterrent, makes up a large portion of its pipeline. If the FDA rejects its efficacy as such on this first application, its remaining candidates are in jeopardy.

All eyes now on June 9th, PDUFA.

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