KMPH Stock: FDA Approval Sends KemPharm Rocketing

KemPharm Inc (NASDAQ: KMPH) is rocketing in the market this morning after announcing that the FDA has approved a new drug. The company’s treatment for attention deficit hyperactivity disorder, or ADHD, will be hitting the market soon. 

Here’s what’s going on:

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KemPharm Announces FDA Approval

In the press release, KemPharm said that the United States Food and Drug Administration has approved its New Drug Application for AZTARYS. AZTARYS is a once-daily treatment for patients with attention deficit hyperactivity disorder. 

In the release, KMPH said that the treatment has been approved for patients six years of age and older. Moreover, the company said that the treatment consists of serdexmethylphenidate, the company’s prodrug of d-methylphenidate co-formulated with immediate release d-MPH. 

The company went on to say that Corium, a portfolio company of Gurnet Point Capital, will lead the commercialization of the treatment as a result of a definitive collaboration and license agreement. As a result, Corium expects to make AZSTARYS available in the United States as early as the second half of 2021. 

KMPH also said that as a result of the FDA approval, it has earned a regulatory milestone payment as provided under the licensing agreement, and it may not be the only one. In fact, under the agreement, the company is eligible for up to $468 million in regulatory and sales milestone payments as well as tiered royalty payments on product sales. In fact, the tiered royalty payments have the potential to climb to percentages in the mid-twenties for U.S. net sales and up to mid-single digits for sales outside of the United states. 

Management Commentary

In a statement, Travis C. Mickle, Ph.D., President and CEO at KMPH, had the following to offer:

The FDA approval of the AZSTARYS NDA is a transformational event for KemPharm and, we believe, an important advancement in the treatment of ADHD. Today’s approval highlights both the value potential of SDX, our prodrug of d-MPH, and the ability of our LAT® platform technology to develop new prodrugs of approved medications that improve one or more of the attributes of the parent drug. We look forward to continuing our support of Corium as they forge ahead with the commercial launch of AZSTARYS.

The above statement was followed up by Perry Sternberg, CEO at Corium. Here’s what he had to offer:

Today’s approval by the FDA is met with great excitement for this innovative new ADHD therapy and the potential it holds to meet the unmet needs of children, adolescents and adults. 

Our team is mobilized to put our commercial plans into action as the approval of the AZSTARYS NDA now enables us to finalize our preparations for commercial launch as early as the second half of this year.

Finally, Ann Childress, M.D., President of the Center for Psychiatry and Behavioral Medicine and an investigator in the AZSTARYS clinical trial said,

The ADHD industry, and specifically the MPH space, has seen little innovation in recent years, leaving prescribers and patients desiring new treatment options. In my research and practice, three properties are repeatedly cited by patients and their caregivers as being underserved by current ADHD medications: onset of action, duration of effect and consistency of therapy. Having investigated AZSTARYS and directly observed its clinical impact on patients, I believe this product will be an important new tool for physicians to use in providing effective care for patients with ADHD.

A Short Squeeze in Play

The news issued this morning seems to have triggered a short squeeze. Prior to the announcement, the short volume ratio on the stock sat at around 19%, which is pretty high to say the least. 

However, when stocks begin to tick up, those who shorted the stock race to cover, which means they run to buy shares. As a result, those who have shorted KMPH stock prior to the announcement are likely running for cover, assisting in the tremendous volume and price appreciation that we’re seeing this morning. 

As we’ve seen from several big short squeezes as of late, there’s a good chance that the gains we’re seeing so far are nothing more than a drop in the bucket to what we’ll see in the near future. 

What Analysts Think About KMPH Stock

At the moment, there’s not much by way of analyst coverage on KemPharm. However, what the company lacks in quantity of coverage, it makes up for in quality. 

At the moment, there’s only one analyst weighing in on the stock. However, that analyst has rated KMPH stock a Buy with a price target of $28 per share, suggesting the potential for gains in multiples. 

Risks to Consider Before Buying KMPH Stock

If you’re considering diving into KMPH stock, it’s important that you consider the risks. After all, any investment you make will come with the risk of loss. In the case of KemPharm, the most significant risks to consider include:

  • Capital. Prior to today’s announcement KemPharm didn’t have any treatments approved. As a result, it has been unable to generate revenue and has been dependent on the cash in the bank to survive. Should this cash not be enough to get the company through to profitability, it may look to public markets to raise funds, leading to the dilution of existing shareholder value. 
  • Commercial. Now that KMPH has an approved drug under its belt, the real work starts. In order to be successful, sales of the treatment must be strong. Should the commercialization not go as well as hoped, the stock could experience significant declines. 
  • Volatility. KMPH is known to be a pretty volatile stock. As a result, entrance and exit decisions are made more difficult, which could lead to losses. 

Final Thoughts

Sure, there are risks to consider before diving into KemPharm. However, the potential rewards here far outweigh the risks. 

The fact of the matter here is that KMPH has achieved a major milestone. With the approval, the company moves from clinical-stage to commercial-stage, and now has the ability to generate revenue. Moreover, the ADHD market is huge, and clinical trials suggest that the company’s treatment will be one of the best on the market. As such, this could become a blockbuster play. All in all, KMPH stock is one to watch closely. 

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